Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

PETERHEAD HARBOURS (SOUTH BAY DEVELOPMENT) ORDER CONFIRMATION BILL

Order for Second Reading read.

To be read a Second time upon Monday 16 December at Seven o'clock.

Oral Answers to Questions — NORTHERN IRELAND

Anglo-Irish Agreement

Mr. Canavan: asked the Secretary of State for Northern Ireland whether he will make a further statement about the implementation of the agreement between Her Majesty's Government and the Government of the Republic of Ireland.

Mr. Stanbrook: asked the Secretary of State for Northern Ireland on what date he expects the Anglo-Irish Agreement to come into force.

Mr. Dubs: asked the Secretary of State for Northern Ireland what he expects will be the date and time of the first Intergovernmental Conference to be called in accordance with the Anglo-Irish Agreement.

Mr. Nicholas Baker: asked the Secretary of State for Northern Ireland if he will report on the progress in setting up the conference referred to in the Anglo-Irish Agreement.

Mr. Yeo: asked the Secretary of State for Northern Ireland when the Anglo-Irish Intergovernmental Conference will hold its first meeting.

The Secretary of State for Northern Ireland (Mr. Tom King): The Anglo-Irish Agreement entered into force on Friday 29 November when formal notifications of acceptance were exchanged between Her Majesty's Government and the Irish Government. The first meeting of the Intergovernmental Conference took place in Belfast on 11 December. The conference discussed relations between the security forces and the minority, the enhancement of security co-operation, the importance of public confidence in the administration of justice and economic development. A joint press statement was issued after the meeting. I have placed it in the Library and the Vote Office.

Mr. Canavan: Now that the Secretary of State has let the cat out of the bag by claiming that the agreement virtually guarantees that there never will be a united

Ireland and has made a fool of himself by claiming to speak on behalf of the Taoiseach, is it not clear that the agreement, far from being a lasting peaceful settlement, is hardly worth the paper that it is written on and that the only good that might come from it is if the good people of South Down get themselves a new Member of Parliament—that is, provided that the present incumbent has the guts to resign?

Mr. King: The last matter is obviously not for me. I made a statement in the House on the first matter raised by the hon. Gentleman. I stand by my view that the acceptance of the principle of consent by both Governments is an important development and should give considerable reassurance in those quarters where there has been some concern that the agreement in some way presages a slippery slope to a united Ireland. I made clear my view that the acceptance of the principle of consent by the Government of the Republic is important, and I gave my judgment that I did not think that that consent would be forthcoming.

Mr. Stanbrook: My right hon. Friend referred to the principle of consent. For how long does he think an agreement can last so long as the majority of the people concerned refuse to give it their consent?

Mr. King: There have been some wild rumours about some of the implications of the agreement, but I hope it will be understood that, for instance, while it provides an opportunity for the minority views to be heard, there is no question of excluding the majority community from opportunities for their views to be fully taken into account. That is one of the fundamental misunderstandings that has been expressed. Real benefits will flow to the majority community if we can get enhanced co-operation on security as well. I hope that when that is understood there will be increasing acceptance of the merits of the agreement.

Mr. Dubs: Does the Secretary of State agree that for the success of the proceedings to be ensured it would be better if there were not to be an excessive concentration on security matters to the exclusion of all else, because that is how it has been seen by the press and the public, certainly over here? Furthermore, will the Secretary of State say how the House can be of influence in what is discussed at the meetings?

Mr. King: I accept that the purpose of the agreement is to seek to help in peace and reconciliation. I make no apology for emphasising the importance of tackling the problems of terrorism. On today of all days, and with the recent outrages in Northern Ireland, the House will understand exactly what I mean. That is an important objective. We wish to achieve more reconciliation to help isolate the men of violence.
With regard to the ways in which the House and others may be kept informed, I have, as I said, put a press statement in the Library and I shall be willing to enter into discussions on ways in which proper communication can be established.

Mr. Nicholas Baker: Will my right hon. Friend remind the Unionists in Northern Ireland that many of us who support their position from this side of Great Britain believe that the agreement is the best way forward in terms of security and politics? Will my right hon. Friend tell us


that the best way to convince the Unionists in Northern Ireland of that is to pursue the joint enhancement of security first?

Mr. King: I am grateful to my hon. Friend. He is right. I repeat my statement that I am anxious to see ways in which the allegations of secrecy and lack of communication with the majority community can be defeated. If I am met by refusal to talk—a refusal that has existed since before any agreement was signed—it is difficult to establish better communications.

Mr. Mason: If the agreement is to be implemented, what steps does the Secretary of State intend to take to regain the confidence of the Ulster Unionists?

Mr. King: It is important to understand the merits of the work that has been done under the auspices of the agreement at the conference and to understand the role of the conference, which is to deal with cross-border security co-operation and cross-border economic co-operation, which is a matter between two Governments. It also gives an opportunity for the minority voice to be heard, but it is in no sense a substitution for the opportunity for a majority voice to be heard. I want to make that absolutely clear. I hope that we can get a positive approach and that it will be possible for the benefits of the agreement to come forward. I accept the right hon. Gentleman's point. It is obviously an important requirement.

Mr. Gow: If, in the months ahead, it becomes increasingly clear to the Government that the terms of the Anglo-Irish Agreement are completely unacceptable to the majority in Northern Ireland and to all Unionists there, what will the Government do? How can they then renegotiate the terms of the agreement?

Mr. King: I understand my hon. Friend's feelings on the issue, but I do not think that that problem arises. The most amazing stories have been told about the agreement, involving the disbandment of the Ulster Defence Regiment and changes of uniform for the Royal Ulster Constabulary. They are all wholly untrue and without foundation. They have stirred up much alarm and concern. I believe that the agreement does offer benefits and can be helpful to the community. I hope that those benefits will be increasingly recognised.

Mr. Maclennan: Is the Secretary of State repudiating without cavil the remarks of Mr. Seamus Mallon this morning that the UDR will be disbanded following yesterday's meeting?

Mr. King: I have paid tribute to the essential role played by the UDR. They are men of considerable bravery, conducting a key role in security. One of the most recent developments announced by the commander of the UDR is an enhancement of the regiment, including improved training facilities, which I hope all who support the UDR will welcome.

Mr. Hayes: While I fully understand that my right hon. Friend has to consider the possibility of establishing joint courts, will he take into account the patent absurdity of having a Southern Irish judge dispensing Her Majesty's justice? That may not give a great deal of reassurance to the Unionists, whom we are seeking desperately to reassure.

Mr. King: I thank my hon. Friend for raising that point. He may know that while the matter can be examined

under the terms of the conference, we have made it clear publicly and officially, and to the Irish Government, that we see no early or easy prospect of that being achieved, that there is no commitment to it whatsoever and that, in any case, we require scrutiny by experts, who will include the Northern Ireland judiciary. If it did apply at all, it would have to apply to both jurisdictions. Let me make it absolutely clear that there is no commitment to it whatsoever.

Mr. Flannery: Now that the Minister has changed his mind, under pressure, about the border lasting in perpetuity, does he visualise it lasting for the next 40 years, until the children of the Catholic minority, who have more children in school at the moment, have grown up? Does the right hon. Gentleman visualise the killing going on throughout those 40 years, or does he have a plan, other than what has been done for the past 17 years that will stop the killing?

Mr. King: I have not changed my mind at all. I gave my opinion frankly to the House, and I stand by it. The hon. Gentleman is committing one of the easiest errors to make, by assuming that no Catholics are Unionists. A significant number of Catholics are Unionists, and would wish to belong to the Unionists. Merely to identify Protestants and Catholics as if that determined who might be in support of or against the Unionists is incorrect. My judgment, for historical, attitudinal and economic reasons, is that the majority for staying part of the United Kingdom will remain. That is my view, and I welcome that.

Sir John Biggs-Davison: Does my right hon. Friend not do himself and the Government a great injustice by suggesting that only now, because a Minister of the Irish Republic is installed in the inner councils of Northern Ireland, the voice of the minority can be heard? Have not the House and the Government been listening to the minority for years and been trying to help them and adjust any grievances that they might have? In this dangerous situation, is not the morale of the RUC all-important? Will my right hon. Friend assure me that no code of conduct was agreed with another Government, having regard to the splendid record of the RUC in hunting down the so-called Loyalist murder gangs and acting in a non-sectarian and proper fashion?

Mr. King: What my hon. Friend said at the start of his question was correct. Of course Governments have tried. The query, and the concern, is whether we have managed to achieve the confidence that is necessary for reconciliation. I am grateful to my hon. Friend for raising the latter point. It is entirely a matter for the Chief Constable. It is well known that the Metropolitan police have introduced a code of conduct, and other United Kingdom police forces are doing so. It is made clear in the communiqué34 that the Chief Constable advised the conference that for some time he had been preparing, and would introduce as soon as possible, a code. That is the position. I was interested to hear that from the Chief Constable. It is entirely in line with developments in United Kingdom police forces.

Mr. Archer: Will that proposed code of conduct be made public, unlike the code of conduct that followed the Bennett recommendations? Reverting to the question asked by my hon. Friend the Member for Battersea (Mr. Dubs), since the conference discussed how it should


approach its future programme of work, will the Secretary of State give the House an idea of the subjects likely to be discussed over the next few months, in addition to security and legal matters?

Mr. King: Those matters are contained in the communiqué and in the statement that we produced after it. The work on cross-border co-operation will continue and develop. The work referred to in the programme includes measures to improve relations between the security forces and the minority community and the creation of a working group of officials to establish machinery for further discussions on legal matters. The publication of the code of conduct is a matter for the police authority, but I should have thought it very desirable for it to be published. It is a matter for the authority, but I assume that it will be published.

Mr. Hunter: asked the Secretary of State for Northern Ireland what discussions he is currently having with representatives of the Unionist community about the Anglo-Irish Agreement.

Mr. Maclennan: asked the Secretary of State for Northern Ireland what recent consultations he has had with representatives of the political parties in Northern Ireland on the establishment of the Intergovernmental Conference provided for under the terms of the Anglo-Irish Agreement.

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Nicholas Scott): Unionist elected representatives decided on 14 November, in protest at the agreement, that they would not communicate with my right hon. Friend or other Ministers at the Northern Ireland Office. We deplore this decision, which cannot serve the interests of the majority community. However, the Prime Minister and my right hon. Friend discussed the agreement with a delegation of Unionist Members of the Northern Ireland Assembly on 25 November.
Since the agreement was signed, my right hon. Friend has met both the leader of the Alliance party and the leader of the Social Democratic and Labour party twice. We stand ready to listen to the views of the elected representatives of all constitutional parties in Northern Ireland.

Mr. Hunter: Will my hon. Friend give a yet further and more specific reassurance that, in the event of discussions reopening with the leaders of the Unionist community, and in all the discussions that take place about the agreement, it will be made abundantly plain that it will be taken fully into account that there are legitimate Unionist aspirations and understandable Unionist concerns, and that this has always been and always will be the case?

Mr. Scott: We have been at pains to make it clear that our respect is accorded to both traditions in Northern Ireland. We bitterly regret that the Unionist representatives are not making use of the many channels that are open to them for communicating their views to this Government. We shall persist in our attempts to persuade them to do so.

Mr. Maclennan: Will the Minister recognise that it is not very helpful simply to deplore the action of the Ulster Unionists, and that he might do better to recognise that the setting up by the Government of the Intergovernmental Conference is being opposed by constitutional means?

Mr. Scott: I welcome that, certainly, and I would expect nothing less from elected Members of this House and from other representatives of the Unionist community. I am sure that that is something that we look forward to being continued. I understand the worries of the Unionists, but I wish that they would come and discuss their worries with us.

Mr. Michael McNair-Wilson: If, as seems probable, the Assembly comes to an end in the fairly near future, would it not be a good idea to give Northern Ireland a Select Committee in this House so that Unionist Members and others from Northern Ireland could go over the details of such policies as are required for the Province, particularly those that will spring from the Anglo-Irish Agreement?

Mr. Scott: My hon. Friend raises essentially a hypothetical question. I very much hope that it will be possible for the Assembly to continue. Since its establishment it has done a very useful job in Northern Ireland and I hope that it will be able to continue to do so.

Mr. Nellist: What is the point of the Anglo-Irish Agreement if it provokes sectarian murders and increases the risk of civil war?

Mr. Scott: Frankly, I do not believe that that is the case. I hope that there will be a sensible implementation of this agreement so that we are able to reflect the views of the minority in the decision-making process in Northern Ireland, and so that we can establish improved security cooperation. That is the only basis upon which we shall be able to move forward on the political, the security and ultimately the economic front in Northern Ireland.

Mr. McNamara: On a point of order, Mr. Speaker.

Mr. Speaker: Order. I shall take it later.

Mr. McNamara: On that question, Mr. Speaker Did an Ulster Unionist not seek to catch your eye on that question?

Mr. Speaker: No.

Security

Mr. John Mark Taylor: asked the Secretary of State for Northern Ireland if he will make a statement on the security situation in Northern Ireland.

Mr. Andrew MacKay: asked the Secretary of State for Northern Ireland if he will make a further statement about the security situation in the Province.

Mr. Tom King: Since I last answered questions in the House on 14 November two civilians and five members of the security forces have died as a result of the security situation in the Province. I am sure the whole House will join me in condemning these murders. Although they continue to bear the brunt of terrorist attacks, the security forces carry out their duties with great courage and dedication. As a result of their efforts, since the beginning of the year a total of 495 people have been charged with serious offences, including 24 with murder, and 216 weapons, 12,826 rounds of ammunition and 7,706 1b of explosives have been recovered.

Mr. Taylor: Will my right hon. Friend say whether he considers that co-operation on security matters may come


to include advance information from the South and advance intelligence that may help us to head off tragic attacks like last night's attack?

Mr. King: Before the conference met, I believed that there was scope for benefits to come from enhanced security co-operation. We had a detailed discussion yesterday and I am now more than ever persuaded that there can be real benefits. It simply cannot make sense, with the problems posed by the border, that we should not have the closest possible co-operation when terrorism presents a very serious threat north and south of the border.

Mr. Andrew MacKay: Does my right hon. Friend agree that the people who are most violently opposed to the Anglo-Irish Agreement are the members of the IRA? This has been clearly illustrated by the terrorist attacks in the past few weeks in the Province. How does my right hon. Friend expect greater co-operation with the Irish Government to improve security?

Mr. King: The figures that I have cited on the outrages, including the more recent incidents, the scale of success in recovering weapons and ammunition and the people charged show the size of the challenge that we still face. I would rather not go into detail about how I see particular approaches developing this co-operation. The statement contained a welcome announcement of the increased resources that the Garda will deploy on the border.

Miss Maynard: Does the right hon. Gentleman agree that all the evidence shows that there is no solution to this security problem? Does he agree that the real cause of the problem is the British presence in Northern Ireland and that there will never be peace while that presence exists? Does he agree that there must be a declaration that Britain intends to withdraw from Northern Ireland and to stop treating Ireland as a colony? Only a united Ireland will bring peace. Why do the Irish people not have the same right to self-determination as people in this or any other country?

Mr. King: The hon. Lady holds her own particularly individual views on this matter. I could not disagree with her more. Her views are not shared by the Irish Government, either. They have recognised in the agreement that it is inconceivable that there should be a united Ireland without the consent of the majority in Northern Ireland. That is an absolutely accurate perception.

Mr. Winnick: Should it not be clearly seen that the terrorism in Northern Ireland over the years is completely condemned by hon. Members? All our sympathy goes out to the relatives of those who have been murdered, whether by the IRA or by the terrorists on the other side of the sectarian divide. Does the right hon. Gentleman recognise that many of us believe that the Anglo-Irish Agreement is a limited step forward in the right direction? Will the Government pledge that, whatever the position in the 1986 by-elections, they will stick to the Anglo-Irish Agreement and that they will not back down or allow themselves to be blackmailed?

Mr. King: The agreement was reached between Governments. It has now been approved by both Houses of Parliament. Obviously we must respect that position.

Lignite

Mr. Pawsey: asked the Secretary of State for Northern Ireland what is his latest estimate of the amount of recoverable reserves of lignite in Northern Ireland; how soon he estimates that this will become commercially available; and what assessment has been made of the amount of coal currently imported from Great Britain for use in (a) power stations and (b) the domestic sector in the Province which could be displaced by the exploitation of lignite.

The Minister of State, Northern Ireland Office (Dr. Rhodes Boyson): It is estimated that there are 130 million tons of lignite recoverable from the onshore portion of the deposit at Crumlin and substantially more in other deposits which have not yet been fully assessed. Large-scale mining of lignite is unlikely to begin before the early to middle 1990s, although smaller quantities of processed lignite could be produced sooner. The impact upon the Northern Ireland solid fuel market of any form of lignite cannot yet be assessed.

Mr. Pawsey: I thank my hon. Friend for that full reply. What plans does his Department have to convert power stations to lignite? How many jobs will be generated in that industry and in support industries by the extraction of lignite?

Dr. Boyson: Arrangements have been made for plans to be drawn up for a lignite-fired power station at the mouth of the mine near Crumlin. About £1 million was allocated to the Northern Ireland electricity service to make those plans ready. Arrangements have been made at Kilroot, which has transferred from oil to coal, to convert, if necessary, to lignite. It is difficult to assess how much employment will be generated. Building the new power station will provide considerable employment over three or four years.

Labour Statistics

Mr. Nellist: asked the Secretary of State for Northern Ireland what is the present level of unemployment in the Province; how that compares with May 1979; and if he will make a statement.

Mr. Ron Brown: asked the Secretary of State for Northern Ireland how many people are currently unemployed in the six counties.

Dr. Boyson: At 14 November 1985 there were 120,563 unemployed claimants in Northern Ireland, representing 20.7 per cent. of employees. This compares with an estimated claimant figure of 58,100 at May 1979, representing 10.1 per cent. of employees. The number of unemployed in November was 1,259 lower than in October, due mainly to a fall in the number of unemployed school leavers.

Mr. Nellist: Is the Minister aware that sectarianism, like racism, breeds in conditions of mass unemployment, especially when it is coupled, as it is in Northern Ireland, with low wages and poverty? Is he further aware that all Socialists and Marxists would condemn the recent death threats against the thousands of building workers in the North but, rather than any programme for building Royal Ulster Constabulary stations, the North needs a massive programme of building houses, schools and hospitals, a


reversal of the closure of the gas industry and means of improving the conditions of daily life for Catholics and Protestants alike? That is the way to defeat sectarianism.

Dr. Boyson: I am glad to hear that the hon. Gentleman regrets the loss of employment because of IRA threats to those building new or replacement police stations. The police stations exist to protect people in both communities in Northern Ireland. They are not there to protect some Marxist Government that might take over one day. We deplore the high rate of unemployment. The Government are doing all that they can. With Government money, the Industrial Development Board provided 5,000 more jobs last year. The Local Enterprise Development Unit provided 4,000 more jobs, and another 15,000 jobs were kept going by Government money. Unemployment has not been created by lack of Government money. We want more private investment. I would welcome anything that the hon. Gentleman could do in that regard within his philosophical bounds.

Mr. Brown: As Northern Ireland is essentially a class issue rather than a religious one, what efforts has the Minister made to secure the presence of John De Lorean—one of his whizz kids—to face justice there and to explain why he created so much unemployment and havoc in the Province?

Dr. Boyson: I cannot agree with the first part of the hon. Gentleman's question. There is obviously a religious factor in Northern Ireland, and anybody who does not believe that cannot have been there. We can deplore it or accept it, but it most certainly exists. As for John De Lorean, investment was backed initially by a Labour Government and the decision was supported by the Conservative Government because of massive unemployment in the Catholic sector of Belfast. I pay tribute to the Government of the day for trying to introduce investment, although it was undoubtedly the wrong investment and we do not want any more De Loreans or Lear Fans. We want gilt-edged firms, which can provide employment for all sectors of the community.

Mr. Pawsey: What success has my hon. Friend's Department had in developing interest in the United States and securing investment from the United States? How many jobs have come to the Province as a result of his Department's efforts in America?

Dr. Boyson: One in eight people employed in manufacturing in Northern Ireland are employed by American firms, of which we have 26. Only three weeks ago we announced that DuPont, one of the most advanced firms in the world, is investing £45 million, which will provide an extra 350 jobs. I went over to America in September to try to get more investment. I trust that one of the fruits of the Anglo-Irish Agreement will be more American investment in both parts of Ireland, and more employment.

Mr. Stephen Ross: Does the Minister agree that one of the prime objectives of the new accord with the Republic is an improvement in the economic situation in the whole island of Ireland? What is happening at Harland and Wolff, and what are the hopes for new orders at the yard?

Dr. Boyson: John Parker, the managing director of Harland and Wolff, tries regularly to get orders from all around the world. His order book is very creditable. With

Shorts, Harland and Wolff is a flagship of the Province. The Government will give both companies all possible encouragement and support in their search for orders.

Kinsale Gasfield

Mr. Archer: asked the Secretary of State for Northern Ireland if, in the light of the Anglo-Irish Agreement, he will seek to reopen negotiations with the Irish Government on the supply of gas from the Kinsale gasfield; and if he will make a statement.

Dr. Boyson: No, Sir. The Government announced in September 1984 that the Kinsale gas project would not proceed as it would not be economically viable for Northern Ireland. There have been no changes in the economic factors determining the viability of the project for Northern Ireland which would justify reopening negotiations. Price and particularly demand factors remain clearly detrimental. Many of the undertakings have decided to close, and consumers are aware of the level of assistance available to them to convert or replace town gas appliances.

Mr. Archer: If the Anglo-Irish Agreement is intended to provide a framework for discussing matters of serious concern to the people of Northern Ireland, has the Minister not grasped the fact that both employees and consumers are intensely worried about the future of the gas industry? If the Government of the Republic make proposals to discuss again the price of Kinsale gas, will the Minister at least respond by inquiring what captial may be made available, whether private or public, from Lloyds Bank or elsewhere, and meanwhile suspend the closures? Or is this one more subject where the Government have abdicated any attempt to govern the course of events?

Dr. Boyson: The worst form of co-operation between Northern Ireland and the Republic would be if we were to agree immediately to a project which is not economically viable in Northern Ireland. By all means we shall discuss—

Ms. Clare Short: But Northern Ireland is not economically viable.

Dr. Boyson: The Government are responsible for Northern Ireland. If our first economic co-operation initiative is not successful for Northern Ireland, it will spoil the whole atmosphere. The gas industry in Northern Ireland has been considered for closure for about 10 years, which includes the period of the Labour Government. There is no sign that it can be made viable. At present all the gas companies are moving towards closure.

Garda and RUC

Mr. Alton: asked the Secretary of State for Northern Ireland when the Chief Constable of the Garda and the Chief Constable of the Royal Ulster Constabulary last met; and what further plans they have to meet.

Mr. Scott: The Chief Constable of the Royal Usher Constabulary and the Commissioner of the Garda Siochana met on 2 December and both attended the first meeting of the Intergovernmental Conference held yesterday. Plans for further meetings are a matter for those concerned.

Mr. Alton: Is the Minister aware that we welcome the new relationship between the Garda and the RUC, and


believe that it will enable long-term security to improve in Northern Ireland? Does he agree that the scenes yesterday in Northern Ireland, with the hon. Member for Antrim, North (Rev. Ian Paisley) featuring in news reports last night, can do nothing to improve security in Northern Ireland? Will the Minister say what will be done to improve longer-term co-operation in Northern Ireland, including the establishment of the Anglo-Irish parliamentary tier?

Mr. Scott: The Anglo-Irish interparliamentary tier is a matter for the House. There is a motion on the Order Paper, and that is the concern of my right hon. Friend the Leader of the House. If the House responds, I am sure that the Government will feel able to respond to that. I agree that in the co-operation between the two police forces we are looking, not for overnight improvements or solutions, but for a long-term pattern of co-operation. That, primarily, must rest with the heads of the two police forces.

Anglo-Irish Agreement

Mr. Dykes: asked the Secretary of State for Northern Ireland if he will make a statement on the public response so far in the United Kingdom to the terms and implications of the Anglo-Irish Agreement on consultation on Northern Ireland matters.

Mr. Parry: asked the Secretary of State for Northern Ireland what representations he has received opposing the Anglo-Irish Agreement.

Mr. Tom King: The Prime Minister and I have together received comments from 662 members of the public in response to the Anglo-Irish Agreement. The majority of them expressed reservations about or opposition to the agreement, and come mainly from correspondents in Northern Ireland.

Mr. Dykes: Does my right hon. Friend agree that our impression of British public opinion in the United Kingdom as a whole is of a strong commitment to the sense of the agreement, and of a hope that the Government will not be deflected from pursuing it resolutely, despite what happens in the Province? In that context, and in the context of yesterday's riots and disturbances, could someone in the Province take the hon. Member for Antrim, North (Rev. Ian Paisley) aside— he is a busy member of three parliamentary institutions—and suggest that he must be too busy to indulge in demonstrations with street hooligans, which can do nothing to further the cause of peace in Northern Ireland?

Mr. King: I hope that the House will deplore the scenes of violence yesterday and the injuries suffered by several RUC members. There is widespread support for the agreement on the mainland. I recognise also — I have said it frankly to the House—that there is great anxiety among Unionists in Northern Ireland about the implications of the agreement. However, those anxieties are exaggerated. The agreement has merit and will operate in a way that is not detrimental to the majority. I trust that the majority do not oppose the views of the minority being heard. If that is the case, I hope that we can achieve a better understanding of the agreement and greater sympathy between the views of some in Northern Ireland and those in the rest of the United Kingdom on the merits of the agreement.

Mr. Parry: The Secretary of State will be aware that many Labour Members who voted against the agreement did so because it legitimises the border for the first time in international law. Will he explain his recent statement on the stance of the Taoiseach on Irish unity and partition?

Mr. King: Both Governments affirmed in the agreement the principle of consent: that there would be no change in the status of Northern Ireland without the agreement of the majority. I have made absolutely clear my judgment that its consent for change will not be forthcoming and that it will be the desire of the majority to remain part of the United Kingdom. Others take a different view, to which they are entitled. I stand by my previous statement.

Armagh Prison (Strip Searches)

Mr. McNamara: asked the Secretary of State for Northern Ireland if there are any plans to change the strip-searching regime in Armagh prison.

Mr. Scott: No, Sir.

Mr. McNamara: Why not? Is the Minister aware that although it is acceptable to strip-search people leaving and entering prison when they have been outside the control of the authorities, be they the prison authorities or the RUC, any other strip-searching is vindictive and oppressive and will do nothing to help to improve relations between prison authorities and prisoners?

Mr. Scott: It is worth recalling the facts. During the six months from May to October 1985 there was only one strip-search of a remand prisoner attending Armagh court house. It is worth drawing to the attention of the House the fact that the Whitaker committee of inquiry into the penal system in the Irish Republic concluded that there appears as yet
to be no acceptable alternative means of guarding against bodily concealment of contraband.
That is why strip-searching is important in ensuring the security of the prisons in Northern Ireland.

Anglo-Irish Agreement

Mr. Robert Atkins: asked the Secretary of State for Northern Ireland what effects he estimates the Anglo-Irish Agreement will have upon industrial co-operation between the two countries.

Dr. Boyson: The Government believe that the Anglo-Irish Agreement will create conditions which will foster the industrial progress of Northern Ireland and the Republic of Ireland. The Intergovernmental Conference will provide an additional forum in which opportunities for mutually beneficial industrial co-operation may be identified.

Mr. Atkins: I am grateful to my hon. Friend for that reply. Can he assure me that the success of companies such as Shorts will not be hindered by developments following the Anglo-Irish concord?

Dr. Boyson: I certainly give my hon. Friend that assurance. I trust that co-operation between the Irish Government and the United Kingdom Government over Northern Ireland will attract more contracts, not only to Shorts, but to other businesses, throughout both parts of Ireland.

Mr. Stephen Ross: asked the Secretary of State for Northern Ireland what provision has been made to publish the conclusions arrived at in Intergovernmental Conference meetings.

Mr. Tom King: The first meeting of the Intergovernmental Conference took place on 11 December and we released a joint press statement recording the subjects we discussed. I have placed the statement in the Library and the Vote Office. This will be our general practice in future.

Mr. Ross: Does the Secretary of State intend in due course, perhaps when times are a little quieter, to hold joint press conferences after such meetings?

Mr. King: Although the original discussions on the agreement took place in circumstances of confidentiality, I have made it clear that I want maximum openness about the matters being discussed. The views of the minority are important, but the views of the majority are crucial, too. There must be frank discussion of all the issues. I do not yet know whether we shall achieve that aim by holding joint press conferences. We shall have to develop the practice that seems most appropriate. I am anxious to keep the House and all the parties concerned well informed.

Security

Sir John Farr: asked the Secretary of State for Northern Ireland if he will make a statement on the current security situation.

Mr. Tom King: I refer my hon. Friend to the reply I gave to a question by my hon. Friend the Member for Solihull (Mr. Taylor) earlier today.

Sir John Farr: Can my right hon. Friend assure the House that essential repair work to police stations and the building of new prisons will not be held up in the Province because of terrorist activities? If necessary, will he get the job completed on time by bringing in labour contractors from the mainland?

Mr. King: We are determined to ensure that terrorist intimidation does not triumph, and we shall be anxious to take every practicable step that we can to ensure that proper attention is given to the restoration of necessary protection, where it has been damaged or destroyed, and that it is carried out as effectively as possible. My hon. Friend will not expect me to go into details, but we are most anxious to ensure that that happens.

Mr. Dalyell: How is it that Senator Noonan, the Irish Minister for Justice, could tell a huge American audience about a major and substantial role for Dublin in the day-to-day running of Northern Ireland? Have not different things been said to different people on the same subject, and is this not a geological flaw in the agreement?

Mr. King: The great beauty is that after all the words have been said there is an agreement, which speaks for itself and makes the position clear.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Ashley: asked the Prime Minister if she will list her official engagements for Thursday 12 December.

The Prime Minister: This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be having further meetings later today.

Mr. Ashley: Is it not time that the Prime Minister stopped prevaricating about fraud in the City of London, especially as the Bank of England has just admitted that Johnson Matthey Bankers was involved in fraud? Will she take the opportunity to adapt the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), who condemned the unacceptable and unpleasant face of capitalism? Will she condemn the unacceptable face of the City?

The Prime Minister: If there has been fraud, no one is more anxious than the Government that it should be tracked down and those responsible for it convicted and sentenced. As the right hon. Gentleman is aware, it is a matter for the Director of Public Prosecutions to decide whether to bring a fraud case, and it is vital that the decision should not be made by politicians. We shall do everything possible to ensure that the resources are available, and any inquiries such as that by Lord Justice Roskill will be put into action. We hope to have this report and publish it fairly soon.

Mr. Watts: Does my right hon. Friend agree that those who call for cuts in interest rates to reduce the pressure on, and the costs for, industry should also have regard to the pressures on industrial costs from the rise in the cost of importing raw materials, which flows from the deterioration in the sterling-dollar parity?

The Prime Minister: Yes, my hon. Friend has made a powerful point. We always need to have regard to the cost of raw materials, and if the exchange rate goes down, the cost of raw materials goes up and into the next round of costs, which makes exports less competitive in the following year.

Mr. Hattersley: Last night the Prime Minister publicly speculated about the prospect of tax cuts. Will she therefore answer the question which she avoided answering on 19 November? Will she confirm that, as the Government expect to receive £4.75 billion from the sale of British Gas and other assets next year, the proposed tax cuts will be wholly financed by the sale of those resources?

The Prime Minister: I said that tax cuts must be secondary to holding down inflation. Now is not the time to decide whether there are to be any cuts, and, as I pointed out about the proceeds of privatisation, even if there were none, and one treated the same amount as being borrowed, during the year the total amount of borrowing as a proportion of national income would be the lowest for 14 years.

Mr. Hattersley: If the right hon. Lady is saying, as she seems to be, that tax cuts next year are by no means certain, will she admit that, without an income of £4.75 billion from the sale of British Gas and other assets, there would be tax increases next year, not tax cuts?

The Prime Minister: I do not wonder that the right hon. Gentleman works so hard, knowing the Labour Government's appalling record on personal income tax. Even if we treat sales from privatisation as borrowings, we find that the PSBR this year will be the lowest since 1971–72 as a proportion of national income. The


privatisation programme will continue because it is good for business, for employees, for shareholders and for Britain.

Mr. Onslow: As the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) has referred to speeches that were made last night, will my right hon. Friend give the House an assurance that my right hon. Friend the Chancellor of the Duchy of Lancaster will have an early opportunity to make the speech which he was prevented from making by a deplorable, orchestrated and deliberate campaign by the occupants of the Opposition Front Bench?

The Prime Minister: I hope that my right hon. Friend will have an early opportunity to do so. I am sorry that the Opposition could not take his cogent remarks. I am sure that my right hon. Friend will continue with his customary robust style.

Dr. Owen: Does the Prime Minister realise that by continuing to defend a wholly unrealistic exchange rate she is putting British manufacturing industry in the same position in which she placed it in 1980–81 and risking the loss of a great part of our industrial capacity?

The Prime Minister: I am sorry that the right hon. Gentleman wants to talk sterling down. I do not and I will not. I wish sterling to stay strong, and I am anxious that were it to go down the cost of raw materials would increase, which would have a damaging effect on British industry in the next round of its costings.

Mr. Hirst: Will my right hon. Friend remind the House that it is thanks to the Government that Ravenscraig will continue producing steel? Does she agree that the future and the interests of the Scottish steel industry are ill served by Opposition Members abdicating their responsibilities in the Select Committee on Scottish Affairs?

The Prime Minister: Yes. I agree with both my hon. Friend's assertions. It is this Government who have done everything possible to save production at Ravenscraig over the current three-year plan. That is the only period on which we have pronounced, and we shall stand by that undertaking.

Mr. Chris Smith: asked the Prime Minister if she will list her official engagements for Thursday 12 December.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Smith: Is the Prime Minister aware that her reply to my right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) will be extremely worrying to many outside the House who are perturbed at the apparent lack of concern and action by the Government regarding fraud in the City? Will she give a specific commitment that the Government will bring forward proposals in the Financial Services Bill to improve the regulation of the City and of Lloyd's?

The Prime Minister: The Government have done a great deal to improve the facilities that are available to combat fraud. It was this Government who set up the fraud investigation group. The Financial Services Bill will be introduced shortly by this Government. It was this Government who set up the Roskill commission to

consider the future of juries in fraud trials. We shall continue to do all that we can to ensure that those who are guilty of fraud are brought to justice.

Sir John Biggs-Davison: In view of the references to the unacceptable face of capitalism, did not the House see last night the unacceptable face of Socialism — the giggling, smirking face of Socialism— giggling and smirking in a debate on the serious problems of the inner cities? Will the country not draw its own conclusions?

The Prime Minister: I hope that the country will do just that.

Mr. Penhaligon: asked the Prime Minister if she will list her official engagements for Thursday 12 December.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Penhaligon: Does the Prime Minister recognise the contribution made by Cornish mining to the economy of Britain over hundreds of years, typified by today's announcement that English China Clays, operating in my constituency, made a profit of £75 million? Will the Government be offering some assistance to Cornish tin to prevent it being wiped out, and is she prepared to meet a delegation?

The Prime Minister: As the hon. Gentleman will be aware, the Secretary of State for Trade and Industry made it clear some weeks ago that steps should be taken to enable the legal commitments of the International Tin Council to be met. The latest meeting of that council is still in progress. We want an early return to orderly trading, with other countries meeting their proper commitments. While that meeting is in progress we cannot make any further statements.

Mr. Leigh: asked the Prime Minister if she will list her official engagements for Thursday 12 December.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Leigh: Will my right hon. Friend refuse to accede to the advice given to her last week by that first-rate comic and SDP groupie, Mr. John Cleese, to extend proportional representation from Northern Ireland to the mainland? Does she accept that PR has given Italy no fewer than 35 Governments since the war, has handed whole countries into the clutches of one-interest parties and would break the historic link between a Member of Parliament and his constituency? Does she further agree that if we must listen to comedians, "Yes, Minister" is preferable to "Yes, Manuel"?

The Prime Minister: Yes, I agree with my hon. Friend, and I assure him that this Government have no intention of introducing legislation to change the present electoral system, which has served this country well.

Mr. McCusker: Has the Prime Minister had a chance to consider the carefully drafted words of the communiqué that preceded the announcement that the Irish Republic had already taken action on security on the border, in which it was said that they were taking those measures as a precaution and for reassurance, with no acceptance of the fact that they needed to take action against terrorists? What did they mean by that? Who were they trying to reassure and against whom were they taking precautions?

The Prime Minister: The meeting of the Intergovernmental Conference was a good start to the Anglo-Irish accord. Both sides are trying to do all they can to improve security, and I hope that the hon. Gentleman will look at matters in that spirit.

Mr. Fairbairn: Will my right hon. Friend take time today to have discussions with the Secretary of State for Trade and Industry with a view to referring to the Monopolies and Mergers Commission the bid by Argyll for the Distillers Company, which represents more than 50 per cent. of the entire Scottish whisky industry, which has enormous implications for employment throughout Great Britain, and which company provides about £1 billion to the Treasury, making this a matter of national interest?

The Prime Minister: As my hon. and learned Friend will be aware, my right hon. Friend will take advice from the Director General of Fair Trading and anyone else whom he wishes to consult. I shall draw my hon. and learned Friend's remarks to his attention, but in the end the decision is solely for the Secretary of State for Trade and Industry.

Mr. Duffy: asked the Prime Minister if she will list her official engagements for Thursday 12 December.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Duffy: May I refer the right hon. Lady to yesterday's mob violence in Northern Ireland and the incitement by certain Loyalist Members of this House? Their public statement suggests that they are bent on making Northern Ireland ungovernable, and they say that they will stop at nothing. What steps will she take, if necessary, to keep Northern Ireland governable?

The Prime Minister: I hope that we will give the new agreement a chance and say nothing that inflames opinion

anywhere in Northern Ireland. The Secretary of State for Northern Ireland will take all steps possible to maintain law and order and to fight terrorism. I believe that as a result of the agreement greater steps on security will be taken. Having said that, the best thing is to give the agreement a chance.

Dame Jill Knight: asked the Prime Minister if she will list her official engagements for Thursday 12 December.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Dame Jill Knight: Is my right hon. Friend aware that women widowed during pregnancy or shortly after childbirth are banned from receiving maternity allowance? Does she agree that it is tragic enough to lose one's husband at such a time, without being denied a benefit that all other mothers receive? If so, will she see our right hon. and mutual Friend the Secretary of State for Social Services and ask him to reconsider the matter, as he has not so far proved sympathetic to it?

The Prime Minister: I am grateful to my hon. Friend for mentioning that point. I am sure that my right hon. Friend the Secretary of State for Social Services will give her a complete reply. If she looks into the matter, she will find that since the beginning of national insurance there has been something called "overlapping provisions" under which the same person cannot draw two benefits for maintenance. Under the circumstances that my hon. Friend has drawn to my attention, where there would seem to be a claim for widows' benefit and maternity allowance, the rules are that the person involved can take whichever is the higher of the two allowances. That rule has existed under the overlapping provisions since the national insurance scheme was introduced in the 1940s.

Business of the House

Mr. Roy Hattersley (Birmingham, Sparkbrook): Will the Leader of the House state the business for next week?

The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen): Yes, Sir. The business for next week will be as follows:
MONDAY 16 DECEMBER—Until seven o'clock, private Members' motions.
Remaining stages of the Education (Amendment) Bill. Motion on the Education Support Grants (Amendment) (No. 2) Regulations.
The Chairman of Ways and Means has named opposed private business for consideration at seven o'clock.
TUESDAY 17 DECEMBER—Estimates Day (1st Allotted Day). Until about seven o'clock, consideration of the following Estimate: Class II, Vote 7 (Overseas Aid in respect of Famine Relief in Africa).
The appropriate reports will be shown on the Order Paper as relevant. The House will be asked to agree the civil and defence Votes on Account and the winter Supplementary Estimates.
Afterwards, there will be a debate on the first report from the Select Committee on Members' Interests (Session 1984–85).
Motion relating to the Water Authorities (Return on Assets) (No. 2) Order.
WEDNESDAY 18 DECEMBER—Motion for the Christmas Adjournment. It will be proposed that the House should rise for the Christmas Adjournment on Friday 20 December until Monday 13 January.
Proceedings on the Consolidated Fund Bill.
THURSDAY 19 DECEMBER — Second Reading of the Building Societies Bill.
Motion on the Legal Advice and Assistance (Prospective Cost) Regulations.
Motion relating to the Legal Advice and Assistance (Amendment) (No. 2) Regulations.
FRIDAY 20 DECEMBER—Adjournment motions.

Mr. Hattersley: I wish to ask the Leader of the House three questions. First, may we be assured that there will be no change in visa regulations for Commonwealth citizens whilst the House is in recess, and that before any such change is made the Home Secretary will make a statement to the House?
Secondly, may I repeat the Opposition's request for a general debate on the conduct and character of the City of London? The Prime Minister re-established her anxiety about those matters this afternoon. The House is entitled to a full statement of the Government's position on issues which go far wider than the Financial Services Bill.
Thirdly, will the Leader of the House give urgent consideration to finding time, ideally before Christmas, for a debate on the future of the Scottish steel industry? The Opposition have a genuine fear that the BSC management and the Government may take advantage of the shabby tactics employed by some Conservative Members on the Select Committee this week to take irreversible decisions about the Scottish steel industry whilst the House is in recess. For the sake of the future of Select Committees in general, the Leader of the House should regard that as intolerable and best pre-empted by a statement on the subject.

Mr. Biffen: I shall take the three points in the order in which the right hon. Gentleman presented them. I shall, of course, take account of what has been said about changes in visa regulations for Commonwealth citizens. I shall draw the right hon. Gentleman's point to the attention of my right hon. Friend the Home Secretary.
Secondly, there will be a debate on the Second Reading of the Financial Services Bill to which the right hon. Gentleman quite properly referred. I note his wish that there should be a general debate on the wider aspect of affairs in the City. Perhaps that could be considered further through the usual channels.
Thirdly, I note the right hon. Gentleman's remarks about the Select Committee on Scottish Affairs. I think that deep feelings have been aroused by recent events, and perhaps a little time would do no harm in making a measured judgment on how best to proceed in the present position. I should be heroic, but wholly unrealistic, if I were to suggest that there was a prospoect of a debate on the steel industry before the Christmas recess. Doubtless we can consider the matter further in the new year.

Sir William Clark: Can my right hon. friend say when the Financial Services Bill is likely to be published? If it is published before Christmas, will we have an early opportunity to debate it when we return from the recess?

Mr. Biffen: I hope that it will be possible to publish the Bill before we adjourn for Christmas. I certainly hope that we will debate it shortly after our return.

Mr. David Alton: Does the right hon. Gentleman agree that before telling the City to put its affairs in order this House must be seen to be doing the same? Does he further agree that the debate on Members' interests should be on a substantive motion, that it should be amendable and that it should include within its terms the question of lobbyists?
Does the right hon. Gentleman agree that there should be a debate in the new year on the vexed problem of law and order?

Mr. Biffen: The hon. Gentleman will find that the debate on Members' interests will arise on a substantive motion, that it deals with the topics to which he has referred and that it is amendable. I hope that in that state of initial fraternity we can proceed on that delicate topic.
There is, of course, a general interest in law and order matters. The House has had opportunities in the recent past to discuss that matter on the initiative of private Members. However, I shall bear in mind the hon. Gentleman's comments.

Dr. Alan Glyn (Windsor and Maidenhead): Can my right hon. Friend say when a restriction on the length of speeches to 10 minutes will be introduced? Will that restriction be at the discretion of Mr. Speaker, will he decide when it is imposed, and will it apply to Privy Councillors?

Mr. Biffen: I very much hope that the matter will be brought before the House for resolution fairly soon after we return from the recess. It will be presented in the terms of the recommendation of the Procedure Committee.

Mr. Dennis Skinner (Bolsover): On the debate on the Register of Members' Interests, will the right hon. Gentleman note that the leader of the Social Democratic party said in a statement published today that it would be


a good idea to stop all Members of Parliament from moonlighting? That is an excellent idea, and one which I have canvassed for many years.
However, I find it strange that the SDP should put forward that idea because, having checked on the number of moonlighting jobs undertaken by the 20 or so alliance members, I find that they have more than 20 such jobs between them. I reckon that the leader of the SDP is in trouble.

Mr. Biffen: One thing is certain: if an argument is jointly shared between the hon. Gentleman and the leader of the SDP, one or other of them is in trouble.

Mr. Bill Walker: Will my right hon. Friend seriously consider the request by the Opposition Front Bench that the House should debate the steel industry in Scotland at an early date? Will he bear in mind the fact that there have been problems in the debates of the Select Committee on Scottish Affairs? Conservative Members have supported the hon. Member for Monklands, West (Mr. Clarke) in his wish that the Committee's report should not be published.

Mr. Biffen: I should like to confine myself to the question of a debate upon the Scottish steel industry. I realise that that is an important topic, but it was originally suggested to me that the debate should take place next week and I simply do not see how time can be found for it then.

Mr. Max Madden: Can the Leader of the House appreciate that I want to do him a favour in underlining the considerable importance of an early statement from the Home Secretary about the intentions of the Home Office on visa requirements, bearing in mind the fact that in evidence to the Select Committee this week the Minister of State said that the Home Office was considering visa requirements for citizens of Bangladesh seeking to visit Britain?
May I also draw the right hon. Gentleman's attention to an extremely important ruling yesterday by an immigration appeal tribunal which upheld the right of the children of British citizens who seek to enter Britain, if refused, to appeal and, pending appeal, to remain in Britain? It is estimated that a large number of children seek to enter under the terms upheld yesterday by the tribunal. If visas were introduced, that right would be effectively frustrated.
Bearing in mind the allegation of the Minister of State against Members of Parliament, including myself, that we were abusing immigration procedures and rules by giving advice to our constituents, and bearing in mind that our advice will be sought by constituents who are British citizens who originate from Bangladesh as to what their children should do in that situation, will he arrange for an early statement to be made so that we can seek the advice of the Home Secretary and do not upset the Minister of State any more?

Mr. Biffen: I said in response to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) that I would raise the matter with my right hon. Friend the Home Secretary, and, of course, I shall also draw to my right hon. Friend's attention the points that have just been made by the hon. Gentleman, but I am sure that he too will have noticed that on both Wednesday and Friday he may well have the opportunity to raise exactly the points that he is seeking to make today.

Mr. Ian Lloyd (Havant): I have just learnt that it is the Government's intention that the first meeting of the Standing Committee on the Gas Bill should take place next Tuesday morning. As it had been arranged for the Secretary of State for Energy to give evidence to the Select Committee on that morning, is there any possibility of that meeting of the Standing Committee being postponed until Thursday?

Mr. Biffen: I am not sure whether it falls within my terms of responsibility, but I shall most certainly look into it.

Mr. Jack Ashley (Stoke-on-Trent,South): Is the Leader of the House aware that the legislation which provides anonymity for women who are victims of rape does not apply when they seek compensation in civil courts and that that will naturally undermine the intention of that legislation and deter women from applying for compensation? Will he discuss that with the Home Secretary and see what can be done next week?

Mr. Biffen: I shall most certainly draw to the attention of my right hon. Friend the Home Secretary the point that the right hon. Gentleman has made.

Mr. David Harris: My right hon. Friend will have heard the Prime Minister say during Question Time in reply to a question from the hon. Member for Truro (Mr. Penhaligon) that the Government feel unable to make a statement on the tin crisis until the meeting of the International Tin Council comes to a decision. Bearing that in mind, can he give me an assurance that the Government will make a statement on the crisis as soon as that meeting is over, particularly as Ministers have said nothing about the situation to the House in the past seven weeks while this serious crisis has been with us'?

Mr. Biffen: I understand the point that my hon. Friend makes and his constituency interest in it. I shall draw the attention of my right hon. Friend the Secretary of State for Trade and Industry to the desirability of making a statement as early as practicable having relation to the factors mentioned by my right hon. Friend the Prime Minister.

Mr. John Ryman: Will the Leader of the House give us a sensible answer about the independent colliery review procedure? He wrote a letter to me about it last week which was totally unhelpful. Is he now aware of the fact that three pits are due to be closed soon after Christmas and that unless the procedure is understood by the Government and the coal mining unions it will be impossible to have any hearings before that date? I have asked the Leader of the House on several occasions to arrange for a debate on this important topic, which is now very urgent indeed. Can he tell us—the Secretary of State for energy just does not know—when the tribunal will begin to sit to hear the appeals against the closures, including the closure of Bate's colliery in Blyth where 1,400 jobs will be lost if the pit is closed?

Mr. Biffen: I am sorry that the hon. Gentleman has not found our correspondence satisfactory hitherto. Perhaps on the basis of the business that I have announced for next week he will have as good an opportunity as he is likely to have to raise the matter on the business for Wednesday or on an Adjournment motion on Friday.

Mr. W. Benyon: Does my right hon. Friend's reply to my hon. Friend the Member for Windsor


and Maidenhead (Dr. Glyn) mean that the other recommendations of the Select Committee on Procedure, particularly those appertaining to Committee procedure, will be laid before the House?

Mr. Biffen: Certainly, but I want to make it clear that it will not be immediately on our return from the recess; it will be fairly soon afterwards.

Mr. Gregor MacKenzie: Will the Leader of the House reconsider the answer that he gave to my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) about the Scottish steel industry vis-à-vis the Select Committee on Scottish Affairs and the decisions taken yesterday? Is he aware that there is a great deal of bitterness in the steel industry about the attitude and the actions of some of his hon. Friends, and that the steel workers from my part of the country feel that the shenanigans of the Tory party in Scotland should not result in punishment for steel workers in Gartcosh?

Mr. Biffen: The right hon. Gentleman puts forward the case persuasively, as ever, but I cannot recognise the bahaviour of my hon. Friends who are on the Select Committee on Scottish Affairs in the terms that he has described. I know that feelings have been aroused by the recent events on the Committee, but I think that it would be helpful to have a little time to reflect.

Mr. Harry Greenway: Has my right hon. Friend seen reports that teachers in Hereford and Worcester are to refuse to enter pupils for A-level, 0-level and CSE examinations next year and that teachers in other parts of the country are to be asked to follow suit? Will he arrange for the Secretary of State for Education and Science to come to the House at an early date to publicise the fact that pupils can enter themselves for public examinations if they wish to do so, and that they are not dependent upon the teachers' whims and strike tactics?

Mr. Biffen: I thank my hon. Friend for raising that subject and bringing it to the attention of the House. My right hon. Friend the Secretary of State for Education and Science will be before the House at Question Time on Tuesday and perhaps that will prove to be an appropriate occasion for the matter to be further considered.

Dr. Jeremy Bray: Is the Leader of the House aware that he is creating difficulties by not offering time to debate Gartcosh before the recess? There is a widespread fear in Scotland that the British Steel Corporation will take irretrievable action during the recess, particularly in the declaration of redundancies. It would be inappropriate for Ministers to make up their minds on the evidence submitted to the Select Committee before the House had had an opportunity to debate it.

Mr. Biffen: I understand the hon. Gentleman's point. The request for time has been made in the context of Government time. I think that I am entitled to point out that it is perfectly possible for that topic to be suggested for the debates that follow the proceedings on the Consolidated Fund Bill.

Mr. Robert McCrindle: Are there any plans for a Government statement to be made on mergers and competition policy? Does my right hon. Friend agree that, in the light of the recent spate of

announcements about mergers, with some being referred to the Monopolies and Mergers Commission and some approved, there is, to say the least, some confusion as to the parameters within which the policy is operated? It would be helpful to know whether market share is to be the principal criterion or whether, in addition, the interests of the shareholders and the employees are taken into account.

Mr. Biffen: I shall draw the attention of my right hon. and learned Friend the Secretary of State for Trade and Industry to the point that my hon. Friend raises.

Mr. Harry Ewing: May I force a much more definitive answer from the Leader of the House on the future of the Select Committee on Scottish Affairs? Does he honestly believe that the Select Committee can continue to work on the basis on which it was working yesterday? The draft report was available for a whole week and, with the exception of the hon. Member for Strathkelvin and Bearsden (Mr. Hirst), no other Member submitted a written amendment to that draft report. At the last minute, under pressure from the Secretary of State for Scotland, the hon. Member for Dumfries, (Sir H. Monro) submitted an amendment that wrecked the report—

Mr. Speaker: Order. The hon. Gentleman must ask for a debate on the matter, not give us the history of it.

Mr. Ewing: I have to give the history to justify my asking for a debate, Mr. Speaker. Having given the history, may I ask the Leader of the House whether he believes that such tactics under pressure from the Secretary of State lead to the effective working of the Select Committee on Scottish Affairs?

Mr. Biffen: No doubt in the spirit of being helpful, the hon. Gentleman has given the history of the events, but, like so much of history, it is open to more than one interpretation. I appreciate that there has been a drama in the Committee. I believe that the best thing that I can do is to stand back for a short while and let passions calm before we see how best to proceed.

Mr. Michael Forsyth: Will my right hon. Friend resist the request for a debate on the future of the steel industry in Scotland, because Opposition Members, out of pique—because their own side voted down the report as they were unable to reach a conclusion—are now trying to get themselves off an embarrassing hook, the Committee having clearly established that there was not a shred of evidence to link the future of Ravenscraig with Gartcosh?

Mr. Biffen: I note what has been said. Next week's business shows the considerable extent to which the Government are already committed to having debates upon matters of the utmost importance to the House. I have observed—it is a perfectly valid observation—that it might be possible for the matter to be debated on the Consolidated Fund Bill, although not on a substantive motion.

Mr. Roland Boyes: Thank you for calling me, Mr. Speaker. I am aware that you cleverly pretended to forget my name last week so that you could get a bit of publicity on Radio 4.
Does the Leader of the house recall that for the past few weeks I have raised the subject of the imprisonment of members of the Turkish Peace Association, and the appeal


—[Interruption.] May I say to the Leader of the House that I do not think that it is a laughing matter. The Supreme Court of Military Appeal will make its decision within seven days. You said on each occasion that I raised it that you would bring the matter to the attention of the Foregin Secretary. I am not suggesting that you have not done so, but I have not heard a word from the Foreign Secretary. In view of the fact that people's lives are at stake, do you not think that at least the Government should—

Mr. Speaker: Order. I shall not forget the hon. Gentleman, but he should not be using all those "yous".

Mr. Boyes: Does the Leader of the House support my contention that on such a serious matter the Government should have a point of view, and that it is about time the Foreign Secretary spoke about it?

Mr. Biffen: I shall defend myself against the sneering innuendo in the hon. Gentleman's remarks that I was laughing about what he was saying about the prisoners in Turkey. I was distracted by the Al barracking which is a constant feature from below the Gangway and which happened to have a humorous content. I am not complaining about that, but I understand the seriousness that the hon. Gentleman invests in that topic and the problem. I have been in touch with the Foreign Office and will go back and continue my representations.

Mr. Peter Bruinvels: With Christmas less than two weeks away and with many office parties in full swing, will my right hon. Friend find time for an urgent debate on drunken driving, in particular on the very worrying fact that during the last 12 months 1,000 people have lost their lives because they have driven their cars after drinking alcohol? May we have a debate next week? May we also have a policy statement that one does not drink and then drive?

Mr. Biffen: No provision has been made for a debate next week in Government time. However, there are ample opportunities for initiatives by hon. Members, and it is in those initiatives that my hon. Friend is so skilled.

Mr. Clement Freud: Is the Leader of the House aware that over 170 right hon. and hon. Members on both sides of the House have signed early-day motion 51 dealing with the Open University?
[That this House confirms its belief in the Open University and regrets the repeated grant reductions imposed by the Secretary of State for Education and Science, which involve cuts in real terms for seven years up to 1987 and which ignore the recommendations of the Visiting Committee; furthermore acknowledges the excellent and vital work of the Open University in providing educational Opportunities, especially for the unemployed, disabled and those in remote areas; applauds its work in science, technology and professional updating; recognises the cost-effectiveness of their provision; and urges the Secretary of State to reconsider the grant allocation to recognise that investment in the Open University will enable it to realise its full potential and bring much-needed economic benefits to the United Kingdom.]
In view of the widespread concern about the future wellbeing of the Open University, may we have a debate on this subject soon, or does a magic number of names have to be added to an early-day motion before one is allotted a debate?

Mr. Biffen: If there were a magic number of names that then earned an entitlement to a debate on an early-day motion, our pattern of debates would be somewhat bizarre. I shall draw to the attention of my right hon. Friend the Secretary of State for Education and Science the interest that the hon. Gentleman has expressed. He in turn might like to try to make the point at Question Time next Tuesday.

Mr. Barry Henderson: Will my right hon. Friend bear in mind the fact that if the Select Committee on Scottish Affairs had reported to the House it would have intensified the argument for a debate on the Scottish steel industry? However, as the Committee, led by the hon. Member for Monklands, West (Mr. Clarke) decided not to report to the House, it diminishes the feeling that the House should urgently debate this matter. Does my right hon. Friend believe that it would be more valuable to debate the Rural Forum report which made some important suggestions about improving the situation in the rural areas of Scotland?

Mr. Biffen: I take note of all contributions, particularly those from Members of the Select Committee, but they do not help me to understand the problem that much more clearly. Therefore, I hope that my hon. Friend will forgive me if I do not go beyond what I have already said.

Mr. Tom Clarke: In view of the numerous references during the last hour or so to my constituency, will the Leader of the House accept from me that the people of Monklands, West are not daft? They recognised, when they saw it, an attempt first to weaken and then to sabotage the Select Committee's report. Above all, will the Leader of the House accept that when it decided unanimously today to continue the fight for Ravenscraig and Gartcosh it reaffirmed its commitment to the parliamentary democracy that appears to be missing on the Government Benches and that will be well reflected if we have the debate which the Committee and Opposition Members want to take place?

Mr. Biffen: I am sure that the hon. Gentleman's constituents are among some of the wisest and most perceptive people in Scotland, if not in the United Kingdom. Therefore, they will see that there is perhaps a certain amount of drama and high passion this afternoon about the affair, which will abate into a better perspective if we leave it for a little while.

Sir Kenneth Lewis: When we have our debate next week on Members' interests, we expect and hope to have robust speeches from those hon. Members who have interests explaining exactly the value to Parliament and to the country of having those interests outside their parliamentary work. May we also hope that we shall hear similar speeches from Opposition Members who have outside interests but who tend to try to hide them?

Mr. Biffen: I do not think that I could make any such judgment, but I join my hon. Friend in hoping that there will be a balanced and vigorous debate because this is a matter not merely of great concern to the House but of very great public interest.

Several Hon: . Members rose—

Mr. Speaker: Order. An important debate is to follow business questions. I shall allow business questions to continue for 10 more minutes. During that time I hope that every hon. Member who has been standing will be called.

Mr. Tam Dalyell: Harking back to the question that was asked by my hon. Friend the Member for Blyth Valley (Mr. Ryman) on the colliery review procedure, this is of course a matter of desperate urgency for Polkemmet. What is needed is not a Wednesday or Friday Adjournment debate, or a Consolidated Fund debate, but a statement of policy from the Government and decisions. After the Leader of the House has been to the Foreign Office, will he please go to the Department of Energy and try to get an answer out of it on this Byzantine question?

Mr. Biffen: I shall most certainly refer the hon. Gentleman's point to the Department of Energy.

Mr. James Hamilton: As the right hon. Gentleman is aware, my constituents face redundancies and short-time working. Before the summer recess, I tabled a question requesting that no statement be made during the recess about the corporate plan. The Government reneged on their promise. Will the right hon. Gentleman ensure that in no circumstances will the position be aggravated for Gartcosh and Ravenscraig and that the matter will be held in abeyance until we return from the Christmas recess?

Mr. Biffen: I understand the hon. Gentleman's points and their significance for his constituency. I shall draw those points to the attention of my right hon. Friend the Secretary of State for Scotland and of my right hon. and learned Friend the Secretary of State for Trade and Industry.

Dr. Norman A. Godman: In view of the growing volume of press speculation surrounding the placement by the Ministry of Defence of orders for three diesel electric submarines, will the Leader of the House ask the Secretary of State for Defence to make a statement in the next few days on the placement of those orders? This issue is vital to my constituency and several others.

Mr. Biffen: I shall certainly convey that request to the right quarter.

Mr. Robert Parry: Has the Leader of the House seen early-day motion 225, which has been signed by 135 hon. Members?
[That this House, recognising Human Rights Day, congratulates Amnesty International Campaign on behalf of prisoners of conscience; calls upon Her Majesty's Government to make its views known to all countries which repress human rights, carry out torture and imprisonment without trial, and to monitor carefully the sale of arms which may be used to repress human rights and prohibit the export of instruments which could be used for the torture of prisoners.]
Will he arrange for a debate after the recess on the general question of human rights, especially the sale of arms which could be used to repress human rights and the export of weapons or instruments which could be used against political prisoners?

Mr. Biffen: I shall draw the attention of my right hon. and learned Friend the Foreign and Commonwealth Secretary to that early-day motion. I shall get in touch with the hon. Gentleman.

Mr. Gerald Bermingham: Will the right hon. Gentleman take time out to discuss with the Home Secretary the question of making a statement or arranging a general debate immediately after the recess on staffing levels in the prison service? As there is gross overcrowding in all our remand prisons, some of which have reached crisis point, and prisoners are not being produced at courts throughout the metropolitan districts to stand trial or to appear on remand, does the right hon. Gentleman consider that a statement should be made or that a debate should take place as a matter of urgency?

Mr. Biffen: I realise that this is a topical matter. I shall draw it to the attention of my right hon. Friend the Home Secretary.

Mr. Jeremy Corbyn: Is the right hon. Gentleman aware that, since the Government introduced temporary visa requirements for Tamil applicants in May this year, their immigration policy has been one of subterfuge and deception? We require a clear statement from the Home Secretary before the House rises for the recess to the effect that the visa requirements for Sri Lankan entrants will be withdrawn, that no decision will be taken during the Christmas recess on visa requirements for anyone from the subcontinent and that extra staff will be sent immediately to all the high commissions on the Indian subcontinent to remove the fear of the queue? Will the right hon. Gentleman ensure that the Minister of State, Home Office withdraws his scurrilous accusations against 23 hon. Members and ends the worry among the Asian community that Members of Parliament can no longer take up immigration cases because of deliberate misreporting by the press?

Mr. Biffen: It is offensive and inaccurate to suggest that Government immigration policy proceeds by deception and subterfuge. I responded to a request on this matter from the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), and I do not think that I can reasonably go beyond that.

Mr. D. N. Campbell-Savours: The City Takeover Panel has just announced that Scottish and Newcastle Breweries has failed to take over Matthew Brown. Will the right hon. Gentleman accept that there are many lessons to be learnt from that takeover, both in the way in which the Department of Trade and Industry handled it in the early days and in the way in which City institutions reacted? Could not these matters be raised in an early debate—a debate on which the right hon. Gentleman can decide? May we have a general debate on City institutions?

Mr. Biffen: I have not yet seen the report of the City Takeover Panel because it has only just come out. It would not, therefore, be appropriate for me to comment. As to the wider matter of a debate on City institutions, I cannot go beyond what I said in my reply to the right hon. Member for Sparkbrook. From the point of view of private initiative, next week's business gives a good deal of scope.

Mr. Greville Janner: Will the Minister responsible for consumer protection make a statement on the grave danger of innocent people being


wrongfully arrested for shoplifting due to a moment of forgetfulness? As this peril is at its height during the Christmas period, will the Leader of the House treat this as a matter of urgency?

Mr. Biffen: I shall draw those points to the attention of my hon. and learned Friend the Minister with responsibility for consumer affairs.

Mr. David Winnick: Will the right hon. Gentleman give an assurance that the Ministers who reply next week to debates will reply and that we will not have a repetition of the occasion when the chairman of the Tory party was deeply insulting and offensive to all those people in the inner cities suffering from great housing hardship? Is there any truth in the rumour that the Secretary of State for Defence was celebrating last night?

Mr. Biffen: The circumstances surrounding the reply to that debate, which touched on serious social, economic and political issues, deserve better treatment than that question and, above all, better treatment than that displayed last night when the Minister seeking to reply was not given a hearing.

Mr. Dave Nellist: Will the Prime Minister speak in the debate on Tuesday on the Register of Members' Interests to reassure the House that her enthusiasm for pursuing local authorities in the inner cities, especially Labour authorities such as that in Liverpool, compared with her lack of enthusiasm for pursuing the inner city gambling exchanges of Johnson Matthey Bankers and Lloyd's, has nothing to do with the fact that one in eight Tory Members of Parliament is a member of the gambling syndicate, Lloyd's?

Mr. Biffen: I hope, even if I do not expect, that we shall conduct the debate at a slightly higher level than low-grade McCarthyism.

Mr. Speaker: I call Mr. Marlow, as a Christmas present.

Mr. Tony Marlow: A merry Christmas to you, too, Mr. Speaker from all of us.
When we are debating procedure, will it be possible to look at the Standing Orders so that we can prevent a repetition of what happened last night when there was a premeditated tactic of controlled giggling by the Opposition Front Bench? Does my right hon. Friend agree that it would be regrettable if the political tactics of Mr. Bernie Grant came to the Chamber before we had the misfortune of seeing him?

Mr. Biffen: Conduct in the House and its control are, happily, not matters for me.

Consolidated Fund Bill and Adjournment (Debates)

Mr. Speaker: I have a short statement to make about arrangements for the debate on the motion for the Adjournment which will follow the passing of the Consolidated Fund Bill on Wednesday 18 December.
Hon. Members should submit their subjects to my office not later then 9 am on Tuesday 17 December. A list showing the subjects and times will be published later that day. Normally the time allocated will not exceed one and a half hours, but I propose to exercise a discretion to allow one or two debates to continue for rather longer, up to a maximum of three hours.
Where identical or similar subjects have been entered by different Members whose names are drawn in the ballot, only the first name will be shown on the list. As some debates may not last the full time allotted to them, it is the responsibility of hon. Members to keep in touch with developments if they are not to miss their turn.
I remind hon. Members that on the motion for the Adjournment of the House on Friday 20 December up to eight hon. Members may raise with Ministers subjects of their own choice. Applications should reach my office by 10 pm on Monday next. A ballot will be held on Tuesday morning and the result made known as soon as possible thereafter.

British Steel Corporation (Gartcosh Works)

Mr. Donald Dewar: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 10, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the future of British Steel's Gartcosh works following the decision of the Select Committee on Scottish Affairs not to make any report on the threatened closure of the plant.
I need hardly delay the House by establishing the importance of the issue. The steel industry is a fundamental bulwark of Scotland's economy. We believe that the closure of Gartcosh would seriously damage the future of that industry and leave Ravenscraig weakened and exposed. If Gartcosh were to close, there would be a direct and immediate loss of more than 700 jobs in the constituency of my hon. Friend the Member for Monklands, West (Mr. Clarke) who has fought hard and valiantly on this issue.
The wider implications for the Scottish economy and the steel industry would be frightening. I submit that this matter is specific because the threat to Gartcosh is naked and real. It has been sharpened by yesterday's unfortunate events in the Scottish Affairs Select Committee. To the dismay of almost everyone in Scotland, a draft report positively recommending a new lease of life for the plant was suddenly wrecked by an apparent U-turn by certain Conservative Members.
The matter is urgent because there was an understanding on both sides of the House that the Select Committee report would be taken into account and be an important influence on the Government's decision whether Gartcosh should be linked with Ravenscraig and be covered by the admittedly short-term, but still important, guarantee given to the main plant.
The Select Committee's decision not to report may encourage British Steel management to take steps over Christmas which could bury all hope for the plant.
I appreciate that there are opportunities to raise these questions on the Floor of the House next week but it is essential that the House has a chance to express its views on this matter in the Lobby. This is a vital matter—not just what happened in the Select Committee yesterday, although that is important. It is essentially about the future of the steel industry in Scotland. We face a massive unemployment problem today and we are determined to continue the fight for jobs in Scotland.

Mr. Speaker: The hon. Member for Glasgow, Garscadden (Mr. Dewar) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
the future of British Steel's Gartcosh works following the decision of the Select Committee on Scottish Affairs not to make any report on the threatened closure of the plant.
I listened yesterday and today with great care to the exchanges across the Chamber, but I regret that I do not consider the matter which the hon. Gentleman has raised is appropriate for discussion under Standing Order No. 10 and therefore I cannot submit his application to the House.

Severn Bridge (Tolls)

Mr. Barry Jones: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 10, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the judgment of the High Court regarding Severn bridge tolls.
It appears that a judgment has been made which declares that the recently increased tolls for lorries and cars are unlawful. Tens of thousands of Welsh people have paid between 20p and 50p extra on their cars and an extra 40p to –1 on lorries. That is an increase of up to 150 per cent. We, and especially my hon. Friend the Member for Newport, East (Mr. Hughes) have protested at these increases. What do the Government propose to do? Will the cash that has already been paid out be refunded? When will those who paid the increased tolls be recompensed, and how? Will Ministers apologise for the procedural impropriety of the public inquiry? There is good reason to abolish all Severn bridge tolls, for which many industrial concerns and commuter organisations have called.
Gwent county council has played a leading part in fighting the proposed increases. It has been vindicated. There have been damaging and expensive delays at the bridge for the industrial companies of Wales. The tolls have made matters financially worse. It is extraordinary that the Secretary of State for Transport's legal department has perpetually been proved wrong in the British courts. Will the Secretary of State for Wales ensure the building of a second Severn crossing?

Mr. Speaker: The hon. Member for Alyn and Deeside (Mr. Jones) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
the judgment of the High Court regarding Severn bridge tolls.
The hon. Gentleman has raised an important point and I have listened carefully to what he has said, but I do not consider that the matter that he has raised is appropriate for discussion under Standing Order No. 10 and therefore I cannot submit his application to the House.

Mr. Alan Williams: On a point of order, Mr. Speaker. I appreciate the ruling that you have just given. Do you appreciate the difficulties with which people are confronted when they know that the tariffs being charged on the bridge are now illegal? To clarify matters, is it not possible for the Secretary of State for Transport to come to the House tomorrow morning and make a statement regularising the situation?

Mr. Speaker: This is not a matter for me, but I am sure the comment has been noted.

Autumn Statement 1985–86

The Chancellor of the Exchequer (Mr. Nigel Lawson): I beg to move,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 12th November; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.

Mr. Speaker: I have selected the amendment in the name of the Leader of the Opposition.

Mr. Lawson: Let me start by apologising to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). In our last debate I praised the right hon. Gentleman's writings for Punch. I had not realised that this harmless compliment would be used by the SDP to cast doubt on the right hon. Gentleman's working class credentials. Apparently, a Mrs. Shirley Williams declared on television last week:
You aren't working class Roy — you're a very good writer.
Could I make it clear that we on this side of the House, who do not suffer from these class hang-ups, entirely accept that the right hon. Gentleman is every bit as working class as he feels it necessary to be.
Exactly a month ago today I presented my autumn statement to the House. In it I described a satisfactory outlook for growth, inflation and the current account of the balance of payments. I set out this Government's public expenditure planes for the next three years. In the intervening month inflation has fallen back further, to an annual rate of 5.5 per cent., as I predicted, and last week's figures appear to confirm that the long and seemingly inexorable rise in unemployment has at last come to an end. The whole House will, I know, welcome this.
I have read with interest the report of the Treasury and Civil Service Select Committee. Once again, I congratulate the Committee, under the skilful chairmanship of my right hon. Friend the Member for Worthing (Mr. Higgins) on the speed with which it has been produced.
It is useful to recall what the autumn statement is and what it is not. My predecessor presented the first autumn statement to the House in 1982. It contained then, as it does now. three principal elements. The first is a projection of the Government's expenditure plans. This year I have expanded the information available on public expenditure by providing plans not just for the immediate year ahead but for each of the next three years. The second is a new forecast of economic prospects, as required by the Industry Act. The third is the rates of national insurance contributions for the coming year. That is what the autumn statement is.
It comes at the end of the annual public expenditure round and gives the House an early indication, before publication of the public expenditure White Paper, of the Government's spending plans.
The autumn statement is not and has never been a sneak preview of the budget. It is essentially for this reason that I decided this year not to publish either the so-called estimated fiscal adjustment for 1986–87 or the inevitably highly uncertain revenue forecast from which the fiscal

adjustment figure could be conventionally derived. I am genuinely sorry that the Committee has not felt able to endorse this common sense decision. I found its arguments on this point distinctly unpersuasive and we shall simply have to agree to disagree. There will be no fiscal adjustment or revenue forecast published this autumn or any subsequent autumn.
Indeed, there could have been no swifter vindication of the decision not to publish a revenue forecast at the time of the autumn statement than the latest developments in the oil market, following the OPEC meeting in Geneva. The dust has not settled on that yet, and it is too soon to form a view of the likely level of oil prices during the coming year, but, in so far as the prospect now is for a lower oil price than was assumed at the time of the autumn statement, it follows that, other things being equal, tax revenues in 1986–87 will be correspondingly lower and the scope for tax reductions in next year's Budget correspondingly diminished. The House and the country should be in no doubt about that.
While it is possible to conceive of a sudden fall in the oil price so great as to cause serious disruption and dislocation to the entire world economy, I find the prospect as unlikely as it is undesirable. Short of that, there is no threat to the British economy. Even now, at its peak, oil accounts for only 6 per cent. of GDP, and we are a substantial oil consumer as well as a substantial producer. What we stand to lose on the swings, we stand to gain on the roundabouts.

Mr. Dick Douglas(Dunfermline, West): Does the right hon. Gentleman agree that he has missed out the fact that we are also a substantial oil exporter thanks to the fact that we are currently producing as much as the Saudis—[Interruption.] I am sorry, but we are producing 2.7 million barrels a day, which is much the same as the Saudis. The Chancellor has access to much more information than I, and I am sure that he will correct me if I am wrong. What does he predict will be the oil price in February and March next year when we are likely to be in great difficulties and his fiscal and budgetary strategy is likely to be in ruins?

Mr. Lawson: I will no more make predictions about the oil price in the spring than I will give a fiscal adjustment for 1986–87.
Government policy in this area remains unchanged. I recall a rather similar state of affairs some three years ago, when I was Secretary of State for Energy. The oil price was weak, and the nervous Nellies, if I may borrow a phrase, were talking about "free fall". OPEC decided to hold its meeting, for the first time, in London— in order, so it was said, to bring pressure to bear on Britain to curb its oil production.
I had the very great pleasure of receiving visits from several eminent OPEC oil Ministers, all of whom wanted us to do just that. I explained how that was impossible and how we in the United Kingdom maintain the freest oil province in the world in which decisions on how much to produce are made not by the Government but by the oil companies. That remains so today, and there is no way round it—not even by the back door.
As it happens, United Kingdom oil production is now at its peak, and from now on is likely to be on a gradually declining path, but there is no way in which the United Kingdom will become a country member of OPEC.
I return to fiscal policy. There is one respect in which the Treasury and Civil Service Select Committee could have been of great assistance to me, and for which it has no need of uncertain revenue forecasts to help it form a view. It could have said what, in its judgment, would be the right PSBR to aim for in 1986–87. I have read its report very carefully, but I cannot find its view on this central issue—the central Budget judgment from which all else flows—anywhere.
It would be unfair to chide the Committee for that omission, however. As it is composed of independent-minded Members from three different political parties, I suspect that there are as many views as there are members of the Committee—perhaps more. No such excuse will wash for the official Opposition, though. They, if they are to be taken seriously at all, are obliged to have a single view on the great issues of the day. I have to confess that it is not always entirely clear what that single view is, but I am sure that the right hon. Member for Sparkbrook will be only too happy to clarify it for us today.
For example, I read in Tribune the other day an interesting interview given by the right hon. Member for Monklands, East (Mr. Smith), who was described, I am sure accurately, as Labour's trade and industry spokesman. In it he complained that the Treasury has been too dominant over economic and industrial policy and declared that, in the unlikely event of there being another Labour Government, they would
build on the Department of Trade and Industry as the powerful economic and industrial ministry".
Perhaps the right hon. Member for Sparkbrook will, either now or when he rises to speak, tell us whether he shares the view that, under Labour, the Department of Trade and Industry would be the powerful economic ministry. Is this the official view of the Opposition? I am happy to give way now. Evidently he has to take advice.
I return to more important matters, the Budget judgment and the right PSBR for 1986–87. What is the Opposition's view on that? What in the right hon. Gentleman's opinion should it be? The whole House will expect the right hon. Gentleman to tell us.

Mr. Robert Sheldon: The right hon. Gentleman is trying to get all views in the House, from the Treasury and Civil Service Select Committee to the Opposition Front Bench. It was some time ago that I was a member of that Select Committee, but there was a time when the Chancellor professed a close interest in monetarism when everybody knew that there was division in the Treasury. Why does the right hon. Gentleman assume unanimity in the Select Committee when he did not have unanimity in his own Department?

Mr. Lawson: There is certainly unanimity in the Treasury. I have made it clear that I do not expect unanimity in the Select Committee. However, I expect a single view from the Opposition. That might be too much to expect, but I pay the Opposition the compliment of expecting it. Let me help the right hon. Member for Sparkbrook by giving him a point of reference. In the Red Book published at the time of the Budget last March, I indicated a provisional figure of £7.5 billion. Does the right hon. Gentleman consider that figure too large, too small or just about right? Which is it? I am happy to give way. [HON. MEMBERS: "Go on."]

Mr. Austin Mitchell: What does the Chancellor think?

Mr. Lawson: The right hon. Gentleman cannot dodge the question by muttering about the iniquities of privatisation. I accept that there is a difference between the two sides of the House on privatisation.

Mr. Robin Corbett (Birmingham,Erdington): The right hon. Gentleman has noticed.

Mr. Lawson: It is a profound difference. We believe that businesses do better for themselves, their employees and for the nation when they are in the free enterprise sector of the economy. The Opposition still believe in nationalising everything that moves. Or do they?

Mr. Dennis Skinner: I wish they did.

Mr. Lawson: The hon. Member for Bolsover (Mr. Skinner) says that he wishes that they did, but let us try to find out. Once again, I shall give the right hon. Member for Sparkbrook the opportunity—I am in a generous mood today; perhaps it is because Christmas is coming—to set the record straight and tell us what Labour's policy is.

Mr. Austin Mitchell: rose—

Mr. Lawson: Which of the privatised companies does Labour propose to renationalise, and on what terms, should it ever be given the chance? British Telecom? British Gas? British Aerospace? Britoil?

Mr. Skinner: Lloyds.

Mr. Lawson: Enterprise Oil? Cable and Wireless? Amersham International? Associated British Ports?

Mr. Skinner: Lloyds.

Mr. Lawson: The National Freight Company? Jaguar? Let us take those 10 for starters.

Mr. Austin Mitchell: rose—

Mr. Lawson: I shall gladly give way to the right hon. Member for Sparkbrook if he will now tell us which of those he wants to renationalise.

Mr. Skinner: Will the right hon. Gentleman give way?

Mr. Lawson: I am sorry that the right hon. Member is unable to answer the question.

Mr. Skinner: Will the right hon. Gentleman give way?

Mr. Austin Mitchell: Will the right hon. Gentleman give way?

Mr. Lawson: I shall give way to the right hon. Member for Sparkbrook.

Mr. Skinner: The Chancellor has left the sensitive ones off the list. What about a nationalised JMB?

Mr. Lawson: The argument about privatisation is about whether those companies, and others yet to be liberated, will do better and make a greater contribution to our national economic performance in the private sector than in the hands of the state. It has nothing whatever to do with fiscal policy and the scope for reductions in taxation. The right hon. Gentleman appears to believe that the proceeds from privatisation should automatically be invested in additional public sector capital projects. A moment's reflection should demonstrate that that cannot make sense.
Spending on public sector capital projects—which Labour when in office ran down just as fast as it could—has to be justified on its merits, project by project. There is no more reason why the transfer of businesses from the state sector to the free enterprise sector should be matched by an increase in spending on public sector capital projects, than that the cost of renationalisation, to which the Labour party is committed, should be offset by an equivalent reduction in spending on public sector capital projects. Is that what the right hon. Gentleman is proposing?
Let me commend to the right hon. Gentleman two recent studies by a source which he should find congenial. Mr. Gavyn Davis, an economic adviser to the last Labour Prime Minister, entitled "—Selling the Silver and Other Bogus Arguments—" and "—More on the Privatisation Debate—" which expose all too cruelly the right hon. Gentleman's confusion on this issue. The plain fact is that privatisation is a policy which is justified on its own merits, is successful and popular, and, at the same time, enables us to bring about a great leap forward in wider share ownership, not least among the employees of the companies concerned. Moreover, we shall continue that policy for many years to come, throughout this Parliament and the next.
Only today, more than 200,000 investors have been allocated shares in Cable and Wireless, and three quarters of that massive public offer has gone to those who applied for up to 1,000 shares. When at the end of the day, some time in the 1990s, the privatisation programme comes to a successful conclusion, with the vast bulk of what was once the state sector of industry safety in the free enterprise sector, it may well be right to permit an offsetting increase in public borrowing. But it will, by then, be an increase from an extremely low level.
Already this year public sector borrowing is likely to be far and away the lowest it has been as a proportion of GDP for 14 years. Indeed, it would still be the lowest for 14 years, even if there had been no privatisation and the proceeds had been replaced by additional borrowing. In short, however one looks at it, the Government's fiscal stance is and will remain prudent. It is hard to imagine a greater contrast with the profligate and irresponsible spending and borrowing plans of the Opposition.

Mr. Skinner: During the past three months I have been puzzled that the Government, who for six years have been on record as saying that the Labour party and a future Labour Government would borrow money to get rid of the dole queues, eight weeks ago sent the Chancellor of the Exchequer, authorised by the Prime Minister, to the currency markets where he borrowed the biggest sum ever borrowed in one day by any Government since the end of the war. He secured $2.5 billion, not to get rid of dole queues or to save the National Health Service, but to rig the currency markets for Ronald Reagan and to save the pound when there are troubles with OPEC. Is it not a scandal, a cheek and hypocritical to attack us for wanting the borrow money to reduce the dole queues?

Mr. Lawson: The hon. Gentleman refers to the strengthening of the reserves by a $2.5 billion floating rate issue. There is an interesting difference between what happened with the Labour Government and what happened with us. The Labour Government had to go on their knees, cap in hand to borrow everything that they could, whereas

we asked the market for $2 billion, but as everyone was so anxious to lend us money we accepted $2.5 billion, instead. That is a fact.
Whether there will be scope for reductions in taxation in next year's Budget, and if so by how much, is, for the reasons I have made clear, particularly uncertain at present. But when tax reductions do come, they will come as a result of our continued success in keeping public expenditure under control, and they will be permanent.
The statement that I presented to the House last month shows that the Government intend to achieve cash totals that will keep public spending broadly stable in real terms. Therefore, as the economy grows, public spending will continue to fall as a proportion of national output. By 1988–89 the proportion is planned to be down to 41 per cent. To achieve that reduction will be a major prize. It will represent the lowest proportion since the early 1970s.
The Treasury Select Committee properly sought to probe the realism of the figures. To hold public expenditure broadly flat in real terms is a demanding objective, but as I explained to the Committee, I believe that it is one that we will achieve. A number of specific factors will help.
First, the period of substantial real increases in defence expenditure has now come to an end, although we shall maintain and improve our defence capability through the pursuit of greater efficiency. Secondly, we are now expecting much slower growth in the massive social security programme. Thirdly, the particularly rapid fall in inflation since 1978–79 led to a sharp increase in real terms in the interest payable on. Government debt. That phase has also come to an end. Those three factors together account for the lion's share of the increase in Government expenditure which we have seen during the past six years. They will not be generating pressure for further increases during the next three years.
The Treasury Select Committee also seemed to complain about what it saw as a major but unannounced change in the Government's economic policy or monetary policy. It is mistaken on both counts. There has been no major change in the Government's financial strategy. Indeed, its continuity is a great source of strength. The evolution that has occurred in the light of changing circumstances could scarcely have been more clearly enunciated, both in my Budget speech and in my speech at the Mansion house.
In my Budget speech I said:
significant movements in the exchange rate, whatever their cause, can have a short-teen impact on the general price level and on inflationary expectations. This process can acquire a momentum of its own, making sound internal policies harder to implement …
That is why I have repeatedly argued that it is necessary to take the exchange rate into account in judging monetary conditions…
There can be no doubt about the Government's commitment to maintain monetary conditions that will continue to bring down inflation. Short-term interest rates will be held at the level needed to achieve this".—[Official Report, 19 March 1985; Vol. 75, c. 789.]
All that has happened since then is that the Government have demonstrated once again that we mean what we say. Not least by resolutely resisting the blandishments of those who would have us seek some opportunistic window through which to depart from that policy. It remains as firmly in place as ever.
The results are impressive.

Mr. Terence Higgins: My right hon. Friend said that he did not expect unanimity from the Select Committee, but our report is unanimous. He also said that we did not express a view on the PSBR, but in paragraph 26 we point out that if the fiscal stance is to remain the same, it will be necessary to reduce the PSBR substantially to offset the increase in public expenditure planned since the Budget.

Mr. Lawson: With great respect to my right hon. Friend, for whom I have great respect, that is not a view on what the 1986–87 PSBR should be. That is the only answer which would have been of assistance to me in trying to reach my conclusions.
I am confident that inflation will continue to subside. No one seriously doubts that.[Interruption.] The Government will stick to their strategy to ensure that that happens, and, as the Prime Minister said, we shall take no action, on taxes or on interest rates, to put that paramount objective at risk.
What of the results of our policies so far? Let us compare the past six years, from 1979 to 1985, with the previous six years, from 1973 to 1979. This is an interesting comparison for many reasons. One period was dominated by a Labour and one by a Conservative Government, and both 1973 and 1979 were peak years in the economic cycle. Therefore, it is a fair comparison, and I always like to be fair, as the House knows. On the record on output, there is little to choose between the two periods, whether we take total GDP, or GDP excluding North sea oil. But there is one fundamental difference. Since 1979, we have closed the gap with our competitors. Our growth since 1979 has been virtually the same as that recorded by France and Germany, whereas during the Labour years France and Germany grew twice as fast as we did. At the same time inflation has been substantially reduced. The average inflation rate since 1979 has been 9 per cent. compared with 15 per cent. during the previous six years.
The years of misery were the years before we came into office, when soaring costs, financial irresponsibility, escalating controls and declining profitability produced the fastest peacetime inflation on record and sapped the foundations of employment. There the responsibility lies.
The right hon. Member for Sparkbrook will no doubt spend a good part of his speech bemoaning the performance of manufacturing industry. He will argue that, even though output as a whole is well up, manufacturing output is still lower than it was when the Government came into office. Since the first half of 1979, manufacturing output has fallen by 5.5 per cent., but that is scarcely new. Listening to the right hon. Gentleman, one would imagine that under Labour manufacturing output was expanding fast. The House will be interested to know that between the second half of 1973 and the first half of 1979, manufacturing output fell by 4.5 per cent.—not much difference there either.
But, in reality, there is a big difference. In sharp contrast to what the inherited in 1979, manufacturing industry is now in a much stronger position from which it can compete in world markets. In 1979, manufacturing
—indeed, industry as a whole — was stripped of its. profits. No wonder it had trouble weathering the storm when the second oil shock arrived.
Today, manufacturing industry's profits are back to levels last seen before the first oil price shock in 1973. This Government wish manufacturing industry to succeed and we have created the conditions for it to do so.
Probably the most striking difference under this Government has been in the growth of manufacturing productivity. That has risen by almost 25 per cent. since we came into office. During the previous six years, the growth in manufacturing productivity was a meagre 4 per cent. The resulting inefficiency and overmanning was, of course, the main reason why there was such a shakeout of labour after the second oil shock. We are still living with the consequences of that inheritance.
What of the performance of the economy since 1983? The right hon. Gentleman still seems to be engaged in the sterile task of refighting the last election, and keeps harping on the effects of the 1980 recession.

Dr. Jeremy Bray (Motherwell, South): Will the right hon. Gentleman give way?

Mr. Lawson: No.
The right hon. Member for Sparkbrook seems to forget that he lost the election. The electorate judged our record and chose to renew our mandate.
What matters now is an assessment of what has happened since then. Take the period from the first half of 1983 to the second half of 1985—the period since the general election. Total output has risen by 3 per cent. a year and manufacturing output has risen by 3·25 per cent. a year. Our output growth has matched that of Germany, and exceeded that of France. Inflation has averaged 5 per cent., compared with 15·5 per cent. under the Labour Government. Manufacturing productivity has risen by more than 4 per cent. a year. Profitability is up, taxes have been reduced, public expenditure has fallen as a percentage of GDP, Government borrowing has been cut and the number of people in work has risen by about 600,000.

Mr. Stuart Randall: I have listened to what the Chancellor of the Exchequer has said and especially to his last point. Will he tell the House in specific terms what impact the autumn statement will have on unemployment?

Mr. Lawson: That is a foolish question. The important thing, as I said earlier, is that the whole House should welcome the recent figures, that show that the long rise in unemployment has come to an end. I would expect the hon. Gentleman to welcome that, rather than try to slander it. What the right hon. Member for Sparkbrook finds most galling is that we are well poised to continue that performance up to and beyond the next election.
I began by apologising to the right hon. Gentleman, so I end on the same note. I am sorry that he suffers such visible anguish at having to acknowledge that the economy is growing strongly. I deeply regret that he has had to eat his words about inflation rising to double figures and to accept that it is down to 5.5 per cent. and set to fall much further next year. I am sorry that he cannot stomach the fact that manufacturing exports are 14 per cent. higher in real terms than when he left office. My heart bleeds for the right hon. Gentleman as he ties himself painfully in knots arguing that our policies are simultaneously deflationary and reflationary.
I assure the right hon. Gentleman that our privatisation programme was not intended to impale him on the horns


of a dilemma—whether to renouce Socialist dogma or popular support. However, the right hon. Gentleman's problems are of his own making. He and his party base their philosophy on the belief that the British people cannot prosper without more state direction, more state ownership, more state spending and higher taxation. They firmly believe that the desire to own property or to spend one's own money is essentially immoral, so Labour are bound to find themselves decrying both the achievements and the aspirations of the British people.
The autumn statement is a record of achievement by the British people, assisted by a Government who work with the grain of the nation, not against it, and of popular aspirations towards ownership and independence being steadily fulfilled. The good news that it contains has been widely welcomed by all who wish this country well. I commend it to the House.

Mr. Roy Hattersley: I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
declines to approve a Statement of economic policy which further damages the interests of manufacturing industry, makes no proposals for a substantial reduction in unemployment, neglects necessary investment in public sector housing and other capital sector programmes, and is based on the sale of national assets for the primary purpose of raising revenue to provide temporary finance for cuts in income tax,".
Those who have had the privilege of listening to the Chancellor regularly during the past two years will know that he always blusters most when he is especially worried about the economy. They will agree, as those outside the House agree, that there is no more demeaning sight than that of a Chancellor of the Exchequer desperate to talk about anything other than his policies. If there is a more demeaning sight, it is that of a Chancellor basing his arguments on completely phoney statistics that have been exposed as such.
A simple example is the Chancellor's repeated claim of 600,000 more men and women in work. The right hon. Gentleman knows that since his Government were elected—he may believe that the world began in 1983, but they were elected in 1979—there has been a net loss of 1 million jobs. The recent claim of 600,000 extra jobs is based on the inclusion of part-time jobs as though they were full-time, and a completely bogus estimate of the self-employed sector.
If that is the best that the Chancellor can do, we are again going through what can only be described as the annual Lawson cycle. That cycle begins in November with the announcement that the economy is set fair for tax cuts and a reduction in unemployment. This year, the upswing in brag and boast was especially pronounced. The speaking note circulated by the Chancellor's acolytes refers to a Tory economic dream come true. In his speech, the Chancellor modestly proclaimed the clearest vindications of his policy.
In the second phase of the cycle, more objective observers question the Chancellor's claims and, I fear, his veracity. This year,The Daily Telegraph described the autumn statement as
a combination of dodgy accounting and electoral cynicism".
That is how the cycle began and how the Chancellor continues to put his case today.
Let me give another example. The Chancellor drew my attention to what Mr. Gavin Davies said in his professional

capacity about the asset sales, as though ii were a commendation of the policy that the Chancellor has adopted. One thing that Mr. Gavin Davies said in the business circular was that selling £4.75 billion of public sector capital assets was exactly the same economically as issuing £4.75 billion of extra gilts. Is that a commendation of the Chancellor's policy? Is that what he thinks he is doing? Is that what his more misunderstanding Back-Bench Members think he is doing? Is that the Gavin Davies judgment which he endorses today? Of course it is not. It is a sign that the Chancellor wanted to make a cheap point about Mr. Davies's origins and assumed that no one in the House would have read the document. It simply will not do.
The third stage in the Chancellor's autumn cycle is when he turns on his critics and abuses them for being prejudiced, ignorant, or both. The fourth stage in the Lawson cycle is the stage when the critics are proved to be completely right in their assessment of his policies.
Let me remind the Chancellor what happened last year. Last year, the Lawson cycle, which began with so much boasting and bragging, ended in the January sterling crisis. The pound fell almost to parity with the dollar, and that fall was accentuated by the Chancellor's performance. He seemed to welcome depreciation as a way of increasing the fiscal adjustment and financing tax cuts. He seemed to believe in the free float, even when it turned into the free sink. That is clearly why the Prime Minister determined yesterday not to allow him to talk down the pound again, and intervened in these matters, as the Bank of England has been intervening for the past fortnight, by announcing that she intended to keep interest rates high and the pound high at the same time.
In any case, the Prime Minister's intervention was largely unnecessary, because, as the Select Committee report makes clear in paragraph 19, the free float is dead. The Chancellor could not bring himself to mention any aspect of those paragraphs in the Select Committee's report, but what they say, and what is clearly true, is that the free float was formally buried at the New York G5 meeting, when the Chancellor had to make a humiliating recantation of his old beliefs. Although the Chancellor no longer believes that sterling should find its own value in the international market, we are still paying the price for the Chancellor's folly in the years when he did. Interest rates stand at 12 per cent., and real interest rates at 7 per cent. That is still largely the result of the damage limitation which the Government had to introduce after the financial fiasco of last January. The result of a 12 per cent. interest rate and a 7 per cent. real interest rate is a catastrophic effect on manufacturing investment and the real wealth of the country.

Mr. Nicholas Budgen: Does the right hon. Gentleman believe that it is possible for a central bank to hold up the value of its currency for a prolonged period against market forces?

Mr. Hattersley: If I am wrong to believe that, the error is compounded and shared by the Prime Minister. The hon. Gentleman, who studies the Prime Minister in all her works, will recall that she said last night that rates would be held up for as long as it was necessary to protect the pound and to hold down inflation.

Mr. Budgen: What is the right hon. Gentleman's view?

Mr. Hattersley: I believe that it can be done for a substantial period, and that the Chancellor is doing it now.

Mr. Budgen: How?

Mr. Austin Mitchell: Drop him a line and tell him.

Mr. Hattersley: If the hon. Gentleman believes that interest rates at 11·5 and 12 per cent. are not a manipulation of the short term, he misunderstands not only what is happening, but what the Chancellor said this afternoon. The Chancellor made it clear—this was one of his tough passages — that he would ensure that, whatever the consequences, the exchange rate would be held at a level which he thought right to keep down inflation. That is why the Prime Minister was wrong to believe it necessary to bolster the Chancellor's resolve yesterday. I do not believe for a moment that the Chancellor will make the same mistake as he made last year. He will make a different mistake from the one that he made last year, although it will result in similar intolerably high interest rates.
The confusion has meant that commentators have found it difficult to give an adequate journalistic description to the change in Government policy. The Government have made an 0-turn. They have gone round in a circle and arrived back at the same place—high interest rates, low manufacturing investment, high unemployment and deteriorating public services.
In his Mansion house speech, about which he spoke so proudly this afternoon, the Chancellor made the second recantation of Government policy, which we shall have to examine in the year ahead. In that speech he formally disowned the basic tenet of monetarism. He now admits that there is no systematic relationship between the various definitions of the money supply and the nominal gross domestic product. That was his central admission. It would be unworthy of me or the hon. Member for Wolverhampton, South-West (Mr. Budgen), who at least agrees that that was what the Chancellor said, to assume that that admission was made because the Chancellor was singularly incapable of meeting his M3 target throughout his stewardship. However, he said that his failure to meet his M3 target did not matter.
I hope that the Chief Secretary to the Treasury can give me a capable and understandable answer to my next question. How does he justify the bland announcement that M3 targets no longer matter when, in the name of pursuing M3 targets, so many companies have been made bankrupt, so many public services have been cut, and so many jobs have been lost?

Mr. John Maples: Does the right hon. Gentleman believe that the money supply is growing too quickly, or too slowly?

Mr. Hattersley: It was growing about 10 per cent. faster than the Chancellor intended.

Mr. Maples: Answer the question.

Mr. Hattersley: I will. Within the parameters of the Chancellor's policy, it was growing far too quickly. Our intention is, was and will be in government to run an economic policy which, while paying proper respect to monetary control, does not believe, as the Chancellor once believed, that monetary control is all that matters. That was the Chancellor's error.
The Chancellor believes that his error has been absolved by the announcement that inflation will be

controlled by an over-valued pound, supported by high interest rates. That policy is bound to cause long-term damage to the economy. What is more, the Government know that it will cause long-term damage to the economy, but they pursue such a policy wilfully and knowingly in the hope of snatching a brief political advantage. That brief political advantage is the pretence of economic recovery. The Government now have a wholly short-term perspective. Just as the world began for the Chancellor only in 1983, for this Government the world will end on polling day at the next general election. Even before that date, all that matters to the Government—

Mr. Lawson: The right hon. Gentleman is worried.

Mr. Hattersley: I repeat what I said during the debate on the Queen's Speech. I am worried, but not about the Tory party. I am worried about the economy and the unemployed.
Even before the general election, all that matters to the Government when they determine policy is the voter whom they believe might be persuaded to rally to their cause. That is why, since the Government were elected and in terms of this autumn statement, the unemployed have been written off.

The Chief Secretary to the Treasury (Mr. John MacGregor): That is not true.

Mr. Hattersley: If the Chief Secretary believes that I am wrong, he will correct me when he replies to the debate. I have no doubt that even on the Government's official figures—the massaged, manipulated and bogusly low figures—3 million men and women 'will be out of work on general election day.
Last Friday we rightfully welcomed the reduction in the November total of unemployed—seasonally adjusted, a reduction of 8,100. The document that announced the reduction stated that the underlying half-yearly trend was a reduction of 2,000 men and women on the unemployment register each month. That 2,000 reduction in unemployment each month is less than half the reduction of the register that is caused simply by entrants into the new special employers' schemes — schemes which in the past the Prime Minister derided as not real or proper jobs and as proposals not worthy of the then Government's intention.
If the underlying trend supported by the Government continues, unemployment will still be higher than 3 million in 1991, and we shall be back to the 1979 total of unemployment some time towards the end of the 21st century. Cynics in the Government will say that the unemployed do not matter and that their votes are lost already, but those who say that misunderstand the British people. It is now understood that a Government who made a reduction in unemployment their first priority could begin to put this country back to work. When it is convenient to do so, the Government admit that money spent on public sector capital is cost effective and a socially beneficial way to reduce unemployment.
Three months ago, at Question Time, the Prime Minister said, when I complained to her about how little was being done in the north of England, that more capital was being spent in the north than in any other region, as if that were a great achievement of the Government's policy. When there is a popular point to be made about public works, the Government cleave to it, just as during


the debate on the autumn statement the Government were proud to make a wholly bogus boast about how much extra money was being put into housing capital investment. They make those boasts because they know that there is now a national consensus in favour of building houses, renovating old schools, replacing old hospitals, repairing roads and beginning to put Britain back to work.

Mr. Nigel Forman: Does the right hon. Gentleman recall that there was a Government who placed the reduction of unemployment as their top objective quite recently? That was the Government of which he was a distinguished ornament from 1974 to 1979. Regrettably, their record was that unemployment went up by 115 per cent.

Mr. Hattersley: That Government had a level of unemployment which at its highest, was more than 2 million less than it is today. They did not have the uncovenanted bonus of North sea oil, which should have been used to transform the nature and character of this country.
I do not believe that the hon. Gentleman is among the cynics about whom I have been complaining, who say that the unemployed do not matter. Some say that, but they are wrong. However, the optimists who pretend that the trend of 2,000 fewer people unemployed a month will improve are also wrong. The trend will not improve, because reducing unemployment is not the Government's greatest priority, nor their intention.
The prospects for the unemployed are revealed by the nature and content of the autumn statement. Whatever growth we enjoy next year will not be investment-led, but will be consumption-led. The increase in consumption by £6.4 billion will be greater than the total increase in the gross domestic product. Exports will grow next year by only 2 per cent., which is more slowly than the rate of growth in world trade. On the other hand, imports will rise by 6 per cent.—faster than the growth in world trade, and faster than domestic expansion.
The intended tax cuts will finance some of that extra consumption, but will result in creating jobs in foreign countries, not here in Great Britain. The result, we hypothesise, the Treasury hypothesises and the Chancellor hypothesised in his autumn statement—even though he seems to be shaking his head, or at least his jowls—will be a deterioration in our balance of payments, just at the time when oil surpluses, on which we have lent so heavily during the past six years, begin to decline. As the Chancellor does not recall the prognosis in his autumn statement, I shall remind him again. The prophecy is the deterioration in our balance of payments at the same time as the oil surplus on which we depend so heavily is beginning its rapid decline.
We should now be encouraging the renovation and revitalisation of manufacturing industry in anticipation of the day when the oil runs out. However, the prospect revealed by the autumn statement is quite the opposite. Soon—

Mr. Roger Freeman: rose—

Mr. Hattersley: Again, I shall give way at the end of my paragraph, which is quite long. Soon, it will be too late. The imports will be entrenched, the export market will be lost and the collapse of manufacturing industry will no longer be masked by oil revenue.
In that context, it is important to remind ourselves of the unanimous conclusion of the House of Lords investigation into our external economy, a report which the Chancellor derided and the Secretary of State for Trade and Industry abused, and a report largely written by peers who have either infinite experience in industry or have served in Conservative Governments. The most distinguished contributor to the report is both an ex-Conservative Minister and a senior figure in industry and the City.
The report, about which the Chancellor laughs, says:
After 1979 output of manufacturing industry fell and has not yet recovered to its previous levels… Much of the growth that has recently occurred in GDP is attributable to oil. Oil has become a major factor in Britain's balance of trade and in the growth of the economy as a whole. But for how much longer can this be relied on? The oil trade surplus will have almost certainly reached its peak this year.
People worried about the prospects for oil contributions to our economy and prosperity must hardly have been able to believe their ears when they heard the Chancellor proclaim his oil policy. I confess that there was much conversation on the Opposition Front Bench, because none of us could believe that he had said it. I am sure he said that the output of oil, its extraction, was not a matter about which the Government had a view—it was a matter left wholly to the individual companies.
If the Chancellor wishes to recant those words, he will do so. Is he really saying, and are the Government really saying, that they have no depletion policy? That is simply nonsense. Are they saying that they have no conservation policy and no views about how much revenue they expect from oil next year? If we have a Government with no depletion policy, we have the only Government in the world who treat their national assets so lightly.
The Government should understand that all the oil revenues that they have received to date, every penny of them received last year, have been dissipated on the extra cost of unemployment incurred by the increase of 2 million under this Government. Those revenues should have been used to reinvigorate manufacturing industry and encourage new investment. Instead—

Mr. Freeman: rose—

Mr. Hattersley: I shall give way at the end of the paragraph. I might forget the hon. Gentleman, but somebody will remind me.
Instead, manufacturing industry has been driven into a decline. The Chancellor was right in one thing, if in nothing else. I shall remind him of the facts of manufacturing industry, arid I shall correct him on one of the sophistries by which he pretends he is offering these statistics. There have been four successive years when net investment in manufacturing industry has been negative. Total manufacturing investment is 20 per cent. lower than it was in 1979. Output is 6 per cent. lower than it was in 1979. The balance of manufactured trade, which was in surplus by £5 billion in 1978, is now in deficit to the tune of £4 billion. The Chancellor sets against all that the increase in manufacturing productivity.
Let me tell the right hon. Gentleman why. at has happened. It has happened by what is called the batting average effect. If we put out of production, by record numbers of bankruptcies, the least efficient firms, the overall level of productivity improves, just as the average of a cricket team is higher if only the first five batsmen are allowed to go to the wicket. Total output, however, like


the total score of the entire innings, is lower than if the other companies had been allowed to make a contribution to the British economy. That is not a cause for congratulation. Rather, it demonstrates that more companies ought be doing business and contributing to the British economy.

Mr. Freeman: It is difficult to tell where one of the right hon. Gentleman's thoughts ends and another begins. He was dealing with manufacturing investment. Will he confirm that it is still the official policy of the Opposition to direct pension fund investment through a state investment bank into British public investment?

Mr. Hattersley: It is certainly the Opposition's policy to provide tax incentives and to repatriate institutional investment. The Chancellor of the Exchequer would be feeling more secure today if he could exercise the upward pressure on sterling which such a process would bring about.
It is Labour party policy to create an industrial bank of the sort that has been successful in Germany, Japan, Sweden and other Scandinavian countries. The Labour party would wish that some of the money brought back to this country—the Chancellor may have it either way, through tax incentives or the removal of tax privileges—should go to a national investment bank. Action of the type that I have just outlined would be hugely beneficial to the economy as a whole, and therefore to pensioners, about whom the hon. Member for Kettering (Mr. Freeman) is rightly worried.
The Chancellor of the Exchequer has no idea when the oil will run out. Can he tell the House what will be the source of revenue to pay the Treasury bills when that day comes? The right hon. Gentleman has on previous occasions given a series of bland answers to that question. He once said that the economy would adjust to the new situation. He can mean only that the economy will learn to live with 3 million unemployed.
The right hon. Gentleman gave one answer to that question, and the Prime Minister gave another. The Prime Minister said that when oil revenues were no longer available the nation would be subsidised and would live partly off the interest obtained from foreign investments made during the years — [HON. MEMBERS: "Oh!"] Conservative Members are not enthusiastic about what I have said. They are proud of creating a remittance man's economy, waiting for the cheques to come in from Tokyo and Frankfurt. I would not enjoy that position. A remittance man's economy would be low on employment, low on manufacturing and technology and, I believe, low on self-respect. Conservative Members will have to make up their own minds about that.

Mr. David Howell: That is not the case in Japan. Will the right hon. Gentleman explain his remark?

Mr. Hattersley: The idea that Japan is wilfully eroding its manufacturing base is a fantastic proposition, but that is the long-term prospect of conservatism.
Some comment should be made on the short-term prospects of that policy, which has made the country dependent on oil revenues. We are developing the vulnerability of a single-commodity economy. I know the figure that the Chancellor of the Exchequer has quoted as

oil's contribution to our economy. I am aware of the size of that contribution, but I am worried about our dependence on it and our vulnerability to changes in the levels of its contribution.
If there is no vulnerability, why have there been so many alarms and excursions during the past three days? If we are not vulnerable to the slightest change in oil price, why does the Chancellor have to authorise intervention in the exchange markets, and why does the Prime Minister have to make her stern pronouncements? If we are not vulnerable to oil price changes, why did the Prime Minister say last night, and the Chancellor repeat today, that, despite the consequences, high interest rates must be maintained as this is not the appropriate time to change?
There is turbulence in the oil markets at the moment, and we are wholly vulnerable to it. Last night, the Prime Minister spoke as if our perilous reliance on oil revenues was not her fault. It clearly is. She spoke also as if the present level of interest rates was a temporary necessity. Unfortunately, it is a permanent feature of Conservative economic policy. Interest rates rose to 14 per cent. in January, and have been at least 11 per cent. since then.

Sir William Clark: What was the Labour's Government's top rate?

Mr. Budgen: What would the right hon. Gentleman have done?

Mr. Hattersley: I would not have talked the pound down in the way that the Chancellor did in January.

Mr. Stephen Dorrell: rose—

Mr. Hattersley: Now that the hon. Member for Loughborough (Mr. Dorrell) has recovered his manners, I shall give way to him.

Mr. Dorrell: The right hon. Gentleman said that he would not talk down the pound, yet five minutes ago he was advocating precisely that course of action—a lower level for sterling.

Mr. Hattersley: There is a considerable difference between believing that we have lost competitiveness and blundering around as the Chancellor did in January and allowing the pound to reach dollar parity. It is inconsistent to say that the pound should be helping exports and not imports, and then to cause the two months of confusion which resulted in the crisis of 14 February 1985.
The Government hope that the collapse of manufacturing industry, the continued high level of unemployment, the increase in interest rates, and interest rates held at their intolerably high level, which the Prime Minister says damages mortgage holders as well as companies, can be forgotten during a period of increased consumption flanked by the tax cuts on which they are determined.
The Government believe that they can buy the British people and their votes by making temporary tax cuts. They are wrong. I do not believe that the British people want tax cuts when they involve penalties in jobs, public services and help for the worse off. The public know that tax cuts help only part of the population. Tax cuts will provide no benefit for the unemployed or for those families who are obliged to finance them. Likewise, they will not benefit those who receive lower child benefit, lower housing benefit and worse public services.
I have no doubt that tax cuts will come, but when they do they will be unsustainable. Whether the Chancellor cares to admit it or not, the cuts are to be financed by the


proceeds from asset sales. A contribution to Government revenue of £4.7 billion from asset sales must, by simple arithmetical necessity, be the place from which the tax cuts come. There is no possible alternative to that, unless the Chancellor has hypothecated his £4.7 billion for a totally different purpose. He has not, and tax cuts are supposed to be the electoral trump card, a frenzied scramble to keep the twice-made but constantly broken tax cut promise.
The Government would gladly sacrifice long-term national interest to achieve that end. They would gladly divide the nation, rewarding some while sacrificing others. They are willing to sacrifice long-term interests, to divide the nation, to help the better off and to penalise the poor. They are unwilling to invest in new jobs which could begin to put the country back to work. That is typical of the Government's approach. It typifies the discredited Chancellor and, above all, an attitude to politics——

Sir William Clark: Will the right hon. Gentleman give
way?

Mr. Hattersley: Certainly not—which is exemplified by the Chancellor of the Duchy of Lancaster. I can say nothing worse about the Government than that they are not fit to be in office.

Mr. Terence Higgins: First, I express appreciation to my right hon. Friend the Chancellor of the Exchequer for his kind words about the report of the Select Committee on the Treasury and Civil Service. It should be recognised that it is probably not in the nature of an all-party Select Committee on any subject to produce a report that states that everything that the Government of the day are doing is marvellous. It is natural that most Select Committee reports tend to be critical and to be given headline reports the day after their publication. However, it is important to appreciate that many recommendations— certainly those that the Select Committee on the Treasury and Civil Service have made — have been implemented by the Government after a comparatively short time.
I believe that the Select Committee has an important, constructive and critical role to play. It must reflect the views of the official Opposition and perhaps those of the alliance, as it is an all-party Committee. I am bound to say in passing that the alliance's amendment appears to be based on an inaccurate and speculative preview of what the Select Committee's report would say rather than on what it actually states. It is rather unfair of the alliance to quote some of the Committee's recommendations while not quoting its views on subjects such as the EMS, on which it came to an opposite view.
I accept that the autumn statement is not a sneak preview of what will appear in the Budget. In the past—this was the view taken by my right hon. Friend's predecessor—it provided the House with a framework and expressed the Government's view of what would be in the Budget when duly presented. For that reason we regret that figures which were previously presented in the statement—for example, updated figures on revenue and fiscal adjustment—have not been provided.
My right hon. Friend the Chancellor of the Exchequer has told us that he believes that last January's sterling crisis was precipitated by the publication of the so-called fiscal adjustment. The Select Committee's view is that the

removal of the adjustment. coupled with the indication in the Gracious Speech of future income tax reductions, has not decreased speculation. There are fewer data on which to work, and to that extent speculation is likely to be wilder than otherwise.
Whether or not we have a fiscal adjustment, the Government last year tended to put great weight upon it, which tended to increase speculation. It was Treasury Ministers' statements on fiscal adjustment last year which caused the problem. This year we have references in the Gracious Speech to reductions in income tax. It could reasonably be said that that is a sneak preview of what is likely to appear in the Budget and that speculative pressures have increased as a result. Had we had the figures for which the Select Committee asked. arid had they been in our possession over the past few days, with all the qualifications that are necessary, I doubt very much whether they would have increased the speculative pressure which has existed in markets during the past week or so. As my right hon. Friend said, we must agree to disagree on that, but it is important that the House should have as much information as it can when facts are available on which to form a judgment so that right hon. and hon. Members can express a view before the Chancellor of the Exchequer produces his Budget. Meanwhile, it would be wise if Treasury Ministers did not express views on tax cuts or anything else of that nature.
I believe that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) has misunderstood profoundly what is happening. Alternatively, he thinks that it is better for him to present his case in the way he did. The Opposition amendment states that the Government's policy
is based on the sale of national assets for the primary purpose of raising revenue to provide temporary finance for cuts in income tax.
The Select Committee has taken the view consistently that the proceeds of asset sales should not be treated as enabling a reduction in public expenditure and thus in the public sector borrowing requirement. The Government are wrong to take that view. The Committee's view is that it is a mistake to regard the proceeds of asset sales as revenue. The Committee has said throughout that the proceeds should be regarded as a means of financing the PSBR. I still believe profoundly that that is so.
If that is so, the position is similar to a sale of gilts. It is not precisely the same, but it is a means of financing the PSBR. I note that the right hon. Member for Sparkbrook is nodding; he may not nod in a moment. If my proposition is accepted, the Government have no more scope for cutting taxes next year than they would have if they were to borrow the money and finance the borrowing by the sale of gilts.
It is wrong to suppose that the proceeds of asset sales provide a miraculous way in which tax cuts can be financed and that the Chancellor's scope for doing so is greater than it would otherwise be. The wording of the amendment appears to be grossly misleading. It seems that the right hon. Member for Sparkbrook has come to the conclusion that he has found a convenient catch phrase with which to cast doubt on tax cuts that can be justified on an entirely different basis. The economic effect of the sale of assets is not the same as a reduction in public expenditure programmes. I hope that we shall not hear so much of the argument that has been advanced by the right hon. Gentleman.
My right hon. Friend the Chancellor of the Exchequer referred to paragraph 19 of the Select Committee's report, which appears in bold type. In this paragraph the Committee looks into the abandonment of M3 as an indicator of monetary policy. When the Government first came into office, the be-all and end-all of their policy was the control of M3. The medium-term financial strategy was to be predominant, and it was argued that the exchange rate could look after itself. Attention is drawn to that in paragraph 17 of the Select Committee's report, and paragraph 18 refers to the change which has taken place to exchange rate policy. The Committee concludes:
All this represents a major change from the economic policy as it was originally explained to us when the present Government took office. In particular, a policy which centred upon holding the money supply to some specified target rate of growth seems to have shifted towards concentrating upon the exchange rate. We think it would be helpful if the Government were prepared to recognise this explicitly.
There is a problem because we have moved from a policy which was dogmatic in its approach to one where it is difficult precisely to identify its constituent parts. The Select Committee observes that it is difficult to ascertain the weight which is to be given to the effect on inflation of a high exchange rate as against the virtues which are to be found in lower interest rates.
We still have not had—we did not have it from my right hon. Friend the Chancellor of the Exchequer this afternoon—a real exposition of the Government's policy. My right hon. Friend still insists that there is no exchange rate target, range or objective, and that it is merely taken into account in assessing monetary conditions. I do not believe that that is the general impression which common sense or commentary otherwise would lead one to believe. My right hon. Friend must recognise that there is now an interest rate-exchange rate policy. He has then to explain to the House precisely what that involves. It is certainly not the same as the policy which was pursued originally when the Government took office.
The balance between monetary and fiscal policy is the so-called fiscal-monetary mix. I am somewhat worried about monetary policy. When the previous Conservative Government were in office, I believed that the control of the money supply was important. I never believed that it was all important, and certainly not in the over-simplified versions of monetarism which one heard expounded. I still believe that control of the money supply is important and I have a slightly worrying sense of déjà vu, a sense of having been here before.
I believe that a programme entitled "The Writing on the Wall" has been receiving much attention recently. I have not seen it but I gather that it is directed to earlier periods. I can recall making speeches in which I stressed how important it was to control M1 and M3. At a later stage I made speeches in which I explained that M3 was behaving oddly because of structural changes in the economy. We had introduced a policy of competition and credit control and the consequence was that M3 figures were behaving strangely. My Treasury colleagues and I chose to under-emphasise M3 and to place greater emphasis on M1. It is difficult to avoid a sense of déjà vu. We heard originally that M3 was all-important and now it

is M1 which is important. I recall that M1 was invented 10 or 12 years ago. M3 is not behaving well because of the structural changes that are taking place.
At that time it was important to distinguish between the money supply figures, the money supply and aggregate demand. In fact, the money supply figures were misbehaving and the money supply was going up, though most of it was siphoned off into the property market, so that aggregate demand was not greatly affected.
As I say, most of it went into the property market, and that caused the huge inflation in property prices. I am worried—given that at present we do not have a reliable indicator of what is happening to the money supply—lest what is happening to the stock market is somewhat similar, and there has been a substantial increase in stock market prices.
It is much easier to unwind money from the stock market than from the property market. Stock exchange investors have a higher propensity to consume than do property speculators, who at the end of the day run out and buy five or six Rolls-Royces. That is why, on the money side, I find things worrying.
The fiscal situation is also worrying. There has been talk lately of the Government adopting a policy of Reaganomics—a tight monetarist policy and a slacker fiscal policy—and in that context one must look at the passage in the report to which I referred my right hon. Friend the Chancellor in my intervention in his speech.
In the debate on the Queen's Speech, I expressed the view that there was a degree of reflation implicit in what was happening. The Chancellor seems at this stage not to have a fiscal stance other than what was announced in the last budget and what will be announced in the next. Meanwhile, there is no change. Nevertheless, as the Select Committee points out, there has been a substantial increase in public programme expenditure since the time of the budget. If that is not offset by a reduction in the PSBR at the next budget, I believe that there will be a relaxation of fiscal stance. The pressures making for that—unless the Chancellor takes the action which I suggested —mean that there has been a general change in that the planned public expenditure has gone up since the last budget.
There is some danger that the Government, in doing the right thing or at any rate in recognising reality, do not make the best case that they could make. For a long time we went on insisting that public expenditure should be cut. It was not—even now the Chancellor is not proposing to cut it but merely to maintain it—with the result that the Opposition were successful in suggesting that there had been cuts in the National Health Service, in the roads programme and all over the place, although such cuts were not taking place.
The policy that is now being pursued by the Government—although I have expressed concern about it not being clearly explained and have said that some of the variables involved seemed to be moving in a slightly dangerous direction—coupled with the overall position, means that we are managing to secure our inflation objectives and a reasonable rate of economic growth. The official forecast in the autumn statement is for a reasonable, by historic standards, rate of economic growth.
We should not be too afraid to say that that should lead to a reduction in unemployment—although not too fast a reduction — because the unemployment that has


has been a once-for-all shakeout of people who were, in a sense, in non-jobs. It will be difficult to generate new jobs for them.
Despite all the misgivings that I have expressed, I believe that the Government's basic line at present is right in terms of reducing unemployment. It is bound to be a slow process, and if the policy were expounded more clearly there would be greater acceptance of what is happening, and less speculation, bearing in mind the fact that uncertainty about what the Government are doing causes problems.

Mr. Robert Sheldon: It is always a pleasure to speak after the right hon. immediately thank him and his Committee for the valuable Member for Worthing (Mr. Higgins) because one can contribution that they make to our debates by producing their reports quickly and thoroughly and by including in the appendices a number of points which help us in our consideration of these matters.
It is a pity that the Chancellor has withdrawn the assessment he made about what was possible in terms of taxation, because it was a move towards the Armstrong recommendation that one could look at revenue and expenditure in the same context and be able to make sensible decisions about what hon. Members wished to see achieved. Although it did not go as far as that, it was a move in that direction and I deplore its removal from the autumn statement.
The most important aspect of the report is contained in paragraph 19 — we must remember the restrained language that is used by every Select Committee—which says:
All this represents a major change from the economic policy as it was originally explained to us when the present Government took office. In particular, a policy which centred upon holding the money supply to some specified target rate of growth seems to have shifted towards concentrating upon the exchange rate. We think it would be helpful if the Government were prepared to recognise this explicitly".
The Committee asked the Government openly to acknowledge the fundamental change from a monetarist policy to an exchange rate policy. I wish the Government would do that. The confession of error is good for the soul, though it may not be quite so beneficial to the theme of political consistency.
I find an agreeable coincidence here in that this is taking place at a time when Professor Minford has urged that monetary considerations dictate a reduction in interest rates. Professor Minford was the academic who came immediately to the mind of the Prime Minister when she was asked in the House which economist she respected most. The danger in academic life, as Sam Brittan reminded us the other day, is to tie oneself too closely to the economic actions of any Government. I am sure that that view will be endorsed by many who now regret that they ever took the Prime Minister's shilling.
Dominating the discussion of the autumn statement are the three factors of oil prices, exchange rates and interest rates and the way in which they affect unemployment and growth in the economy. The major objective of the Government is the preservation of the one success that they can claim — the reduction of inflation. That is an objective that any Government can achieve if they forgo

the true goal of economic policy, which should be the predominant, overriding and major task of improving the prosperity of the nation.
In pursuit of their single and limited aim of keeping down inflation, the prime determinant of their economic policy is the exchange rate. It follows that the defence of the pound is now as important as at any time in the past and that the consequences are likely to be as ill-starred as on those previous occasions.
The problem is—as it always has been—that the Government listen more to the City than to manufacturing industry. Sir Winston Churchill once said that finance should be less proud and Industry more heeded From the time of his ringing declaration to the demands that we now hear from manufacturing industry that their needs are being neglected, the problem in Britain has remained. The City of London is near, is wealthy, has friends in Whitehall and Westminster, knows which doors on which to knock and speaks the same language. On the other hand, manufacturing industry is distant, is widely dispersed and speaks with different voices that are seldom heard in all their full regional diversity in the unaccustomed corridors of Government activity.
As a result, we have a high pound, freedom from exchange control and the sale of Government assets at cheap prices, and the City chalks up yet more multimillionaires while manufacturing industry languishes. The gates of more factories are padlocked and more jobs are lost. In my constituency, more than one third of firms have closed their doors and skilled engineers, formerly the cream of industry, have seen the loss of 30 to 40 per cent. of their jobs.
The Manchester chamber of commerce has specified in detail what is happening in the real world. It is not a shakeout of non-jobs. They were genuine jobs. I must ask the right hon. Member for Worthing to understand that those were small to medium-sized firms producing medium-tech articles for the export and home markets. They have shut. The jobs have been lost. They will never return. If we had a boom now, they would not come back. That has been the greatest condemnation of the Government.
It might be thought that the Government are being neutral between different companies operating in Britain today, that the Government like success, and that if success is to be found in financial operations conducted by individuals rather than in industrial successes employing large numbers of our people, that has nothing to do with the Government. If we have financial success, that is OK. It might be thought that industrial success is OK but has nothing to do with the Government. I believe that it has to do with the Government. It is the Government's actions which make the one prosperous and the other bankrupt. It is the Government's actions which produce the high pound that make exports dear and imports cheap. It is the Government's actions which produce interest rates which, in real terms, are at the historically high levels which benefit the lenders and penalise those who borrow for investment. It is the Government's actions which result in wealth passing from industry to the City. It is the Government's actions which have produced the millions of unemployed people and the silent and bleak factories which disgrace my town.
The current price of oil is prompting fresh consideration here and elsewhere as to the basis of our economy which,


at one time, was our ability to produce and sell our products but which has been distorted by the North sea economy.
I have a simple view about our attitude to oil prices. It is like that of the potato farmer. The potato farmer likes high prices. If we try to explain the sophisticated economic arguments for low potato prices, all he will do is feel for the assurance of his well-stuffed pocket. By all means let us have a depletion policy—it is shameful that we do not have one — to keep some of our wealth in the ground, but as we produce it let it be sold for the highest price we can obtain.
The effects of sales which lead to higher prices are the easiest things in the world to deal with. It is easy to spend wealth wisely rather than to squander it on consumer imports which can ruin our industry. We can arrange matters so that we have a higher level of industrial activity which will consume industrial raw materials and equipment for our manufacturing and employment industries. Such imports could result from a more sensible economic policy.
The saddest and most grievous waste of opportunity has come in the past few years. Since 1945, the major constraint in limiting growth—limiting the creation of wealth and prosperity — has been our balance of payments. For 35 years we have lived with that problem — frequently more of a nightmare than a problem. Suddenly, at a stroke, the ordeal disappeared. The policies of expansion which had been constrained by our payments deficit could have been revived in a new form, to use profitably that wealth which had arisen from the waters of the North sea. It is that waste, neglect and abuse of such a unique opportunity which ranks among the most woeful of our recent peacetime history.
One of the diversions of those of us who spend our waking days discussing economic and financial matters has been the argument about the nature of the anticipated tax handouts in the Budget. The expectation was that the main aim was the reduction of thresholds with the intention of reducing the poverty gap. We understood from the Chancellor of the Exchequer that that was his chief aim.
Recently, we have discerned glimmers of expectation that the weight of tax relief is to be diverted to the reduction in the basic rate. Our Nigel would hardly be our Nigel if he did not intend to reduce the higher rate as well as the basic rate. What are the Chancellor of the Exchequer's real intentions? I am sure that he would regard a basic rate of 25 per cent. and a maximum higher rate of 50 per cent. as his great achievement. Even if I agreed with that kind of tax system, I should hardly regard it as the acme of economic achievement. The achievement must be and can only be the prosperity of the whole nation. It is to that that he should have turned his attention.
The solutions that the Chancellor of the Exchequer had in mind will not start the long road back to reality. He is unlikely to be able to have his 25 per cent. and it would be nonsense to do so. He might try to reduce the basic rate by 2 per cent. to 28 per cent. and the higher rate to about 56 per cent., and claim some credit from his supporters. That will do nothing for the nation as a whole, and that should be his priority. The long road back to reality still lies before us and that task still remains.

Mr. Michael Morris: It was interesting to listen to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). I had hoped that he would be able to answer some of the questions that my right hon. Friend the Chancellor of the Exchequer asked him. It was disappointing that the right hon. Gentleman did not answer one of the three major areas of questioning. I hope that when the hon. Member for Birmingham, Hodge Hill (Mr. Davis) replies—I know him to be an honourable man who likes to have the full picture—he will respond to those questions. They are crucial. It is not sufficient for Labour Weekly to talk about a great rip-off and £62 million raised from asset sales without at least telling its own followers what their policy is. Once they have been told, perhaps the rest of us will know what the Labour party's policy on privatisation is.
I broadly support the Government's economic strategy. I work closely with business. I know that our manufacturing industry and the whole of the economy have no greater interest than the counter-inflation policy. An inflation rate of 3 per cent., or somewhere near, is a goal to which no industrialist in this country would object. He would enthusiastically support it.

Mr. Budgen: No, he would not.

Mr. Morris: Yes, he would. My hon. Friend is a lawyer, not an industrialist. I have a close relationship with industry, and I know that that is the view of the CBI and chambers of commerce.

Mr. Budgen: Yes, but they are not prepared to take the medicine needed to achieve it.

Mr. Morris: My hon. Friend puts his finger on the problem. We see evidence of genuine growth in the economy. If my right hon. Friend the Chief Secretary to the Treasury were to take a trip to the east midlands, he would see a real increase in employment. That has not occurred simply in the past three months. It probably goes back six or seven months. Last Friday, I had an opportunity to spend time in the Northampton jobcentre. It is interesting to see that we are making progress with part-time employment. It is apparently derided by the Opposition, although my female part-time employees want such jobs. They help the family budget and they are delighted to have them.
Progress is also being made in respect of the long-term unemployed in Northampton. That is crucial. As hon. Members are aware, it is often the east midlands with its industrial base that is the precursor of progress in the rest of the midlands and forward to the north.
There is some evidence after six or seven months of some progress in reducing unemployment, but I have one or two anxieties. The first relates to training. It is extremely worrying that we fall abysmally behind relevant training levels in Germany, France and United States.
Hon. Members will have read the leading article in a newspaper about the Coopers and Lybrand report, which not only criticised this country's level of training, but said that too many manufacturers and employers were not aware that this country falls lamentably behind its competitors. I must tell my right hon. Friends that, if we are to remain competitive and become even more competitive, we must tackle that problem before we can move forward.
I make no apology for reiterating the problems with exports. My right hon. Friend the Chancellor rightly said that there was a 14 per cent. increase in manufactured exports during the past 12 months, and my hon. Friend the Minister was wise to criticise the over-exaggeration in the House of Lords report. However, my right hon. Friends should take note of the 36th report of the Public Accounts Committee. Indeed, it is nice to see the Chairman of that Committee sitting on the Opposition Benches today. That report delved with some depth into the issues. It took evidence from the Northern Engineering Industries and other interested parties. It showed clearly that the Treasury's internal inquiry—the so-called Byatt report—which was challenged by the Department of Trade and Industry and the Export Credits Guarantee Department, was a superficial report. However, it raised one real point—that manufacturing industry should demonstrate to all taxpayers that the help given to it to obtain exports has a beneficial affect on employment in the United Kingdom.
I draw the attention of my right hon. Friends to paragraphs 44(g) and 44(h) of the Select Committee report. They read:
We accept that UK exporters should not be disadvantaged on soft credit for exports.
It continued:
though the UK's capital goods exporters should not be undermined as regards their competitiveness.
I welcome the move on the aid and trade provision. However, I do not believe that the budget of £60 million contained in the autumn statement is adequate. The Minister may ask me where the additional money should be found. I suggest that it is not before time that the Department of Trade and Industry considered a transfer of money from internal United Kingdom orientated support to external export support . Evidence is coming in thick and fast that, in terms of job production, the beneficial effect on manufacturing—especially in the midlands and the north—comes from our major exporters. I would like the Government to do something to support them.
There is, of course, the problem of interest rates. Many of my hon. Friends are not bankers and revolt against a policy of high interest rates. I work alongside industry and I recognise that for years industrialists have asked for stability in exchange rates. In a sense, before the current oil position, there was a strategy to achieve stability in the exchange rate at about $1.50 to the pound, with a declining pound-deutschmark rate. In many ways, the pound-deutschmark rate is the key element to the future success of British exports.
The current position in the oil industry causes some concern. If the price reduction means a sterling decline pari passu with the rate at which oil prices decline, that could have a double benefit for this country. First, sterling would come back to a level that many manufacturers believe would make them more competitive, and, secondly, it would increase the world economy.
If oil prices decline and my right hon. Friend the Chancellor decides to keep the sterling exchange rate at about $1.50, he must take account of the warning signals that Britain may end up with the worst of all worlds. I understand that the Treasury has said today that it envisages the effect of the present decline as broadly neutral on inflation because the fall in sterling is cancelled by lower oil prices—and thereby we obtain growth in the world economy. If that is the position, we can live with it.
It has been suggested that the oil will run out and that we should have a depletion policy. There is no better man to handle the oil position than my right hon. Friend the Chancellor. He has been the only Secretary of State for Energy—and I apologise to my right hon. Friend the Member for Guildford (Mr. Howell)—who has listened seriously to the arguments from the oil companies about what would achieve maximum oil production from the North sea. He moved, on the second occasion that he was asked to do so, on that proposition.
The Budget that introduced the many changes to the tax regime for North sea oil has been highly successful. Opposition spokesmen suggest that North sea oil is about to run out and that there should be a depletion policy and a consolation policy. I wonder why they have learnt nothing during the past 10 years. North sea oil and gas enterprises have provided major employment in some of the most hard-pressed areas of Britain. They have provided the major technical advances that have enabled a number of our industries to be in the forefront in their areas. Above all, they have sustained the unemployed through a difficult period while we begin to re-enter what I hope will be opportunities for virtually full employment— [Laughter.] The hon. Member for Great Grimsby (Mr. Mitchell) can laugh if he wishes. I recognise the problems of Grimsby. I invite him to come to Northampton to look at what is happening in the east midlands, where things are turning round. He will then be a little more cheerful.

Mr. Ian Wrigglesworth (Stockton,South): I hope that the Government note carefully the remarks of the hon. Member for Northampton, South (Mr. Morris) about the importance of training, and especially skill training, and support for exports. I am sure that his anxiety in that area and his proposals to alleviate the problems will be echoed throughout wide sections of British industry and on both sides of the House.
I was hoping for an explanation of the hon. Gentleman's commitment to the inflation rate policy that he described. He appeared to suggest that he would pay any price for a low level of inflation. I fear that that is where the Government have already gone wrong. It is no use looking only at one dial on the dashboard. thereby letting the other dials become out of tune. It would be most unfortunate if the Government continued on that course.
I am also pleased to speak after the right hon. Member for Worthing (Mr. Higgins) because I agreed with most of his comments. Indeed, his Select Committee's report has been of considerable help to the debate both in this House and in the country. His remarks about the money supply position rang a loud bell with me. We have always advocated a firm monetary policy. His references to the early 1970s—to competition, to credit control, and to what happened then—awaken fears that matters may be going awry in a way that the whole country may regret in due course.
I also agree with the right hon. Gentleman and the Select Committee in their strictures of the Government for not producing the revenue forecasts and for not providing an estimate of the fiscal adjustments. Let the House be clear why that is the case. It is straightforward politics, not for the reasons which the Chancellor gave. If he can cut taxes in his Budget, he has decided that he wishes to pull them like a rabbit out of the hat, not have them discounted


by being publicised beforehand, despite references to them in the Queen's Speech. He also clearly wants, as he would put it, to kill speculation.
But another term for speculation is open debate about the Government's economic strategy and whether cutting the level of income tax is the appropriate thing to do at present. We would have a much more intelligent debate in the House and the country if those figures were available and if criticisms and support of the Government's economic policy and proposals to cut income tax were made with the figures available rather than in the dark as we are doing as a result of those figures not having been put in the autumn statement.

Mr. David Howell: I admire, with the hon. Gentleman, the work of the Select Committee and I have listened to a good many criticisms of the absence of the figures. But I cannot understand what he is asking for if, understandably, no fiscal judgment has been reached in official sources with the Government's stamp on it. There may well be guesses in the Treasury and the hon. Gentleman may have guesses, but why does he seek an official revenue projection when no such thing exists and when the events of the last few days show how silly it would be to put any firm figures on the situation?

Mr. Wrigglesworth: It is rather curious that it has been possible for the Treasury to make estimates in the past but not now. The circumstances are no different from those existing in the past and it would be helpful for the Treasury and the Government, with all the resources that they have at their disposal, to make an estimate so that the debate before the Budget can take place in the light of those figures. We have figures from the national institute and various other bodies, stockbrokers and other economic forecasters of what they think the fiscal adjustment may be. Those are revised in the light of economic circumstances. The view of the Select Committee, which I support, is that the autumn statement should help to provide us with a "green Budget" so that there can be an intelligent debate about the strategy to be adopted come the spring when the final judgments have to be made. That is an intelligent way in which to conduct our business in the House and to conduct the debate in the country.
Central to the autumn statement is the judgment whether the Government have changed their economic strategy and whether the statement implies that there has been a move towards an expansion of the economy. The Chancellor has stoutly maintained that the statement and his Mansion house speech which preceded it do not imply any easing of the Government's strategy. In evidence to the Select Committee, the Government's chief economic adviser said that there is no conscious easing of fiscal policy and nor has there been any significant easing of monetary policy. Later, he went on to point to the continuing downward pressure on the PSBR as a percentage of GDP. The Chancellor himself pointed with pride to the lowest borrowing requirement in relation to our national income since 1971.
But as the Select Committee has helpfully pointed out, as have other commentators, the additional proceeds of some £2.5 billion from asset sales, together with the allocation of part of the 1986–87 reserve next year to departmental programmes, means that an additional £4 billion has been added to spending programmes since the

1985 Budget. Indeed, looked at since the January spending White Paper, the picture is even more dramatic. The change in spending programmes is up by £4.9 billion from £139 billion in the 1985 White Paper, excluding special asset sales, to £143.9 billion in the autumn statement, an increase of some 3.5 per cent. That is a pretty substantial increase and means that under the Government the planning total has risen by around 9 per cent. which clearly shows a change of strategy.
The asset sales and the raid on the contingency reserve both expand demand. That is in contrast to what the Chancellor said in his 1984 Budget speech when he pointed out that the higher level of asset sales which the Government were planning as the privatisation programme gathers pace is a further reason for reducing the PSBR significantly in the coming year. He said that asset sales reduced the Government's need to borrow, but that their effect on interest rates may be less than the effect of most other reductions in Government spending programmes. That was when asset sales were increased from £1 billion to £2 billion, not by their existing substantial amounts, and there is no similar coyness from the Chancellor this year and no intention to reduce the PSBR.
Therefore, the possibility is that actual spending may overrun the remaining contingency reserve for next year, pushing the PSBR up from £7.5 billion to around £9 billion or £10 billion. When asset sales are added the Government will run down their capital or increase debt by between £13 billion to £14.5 billion next year to produce a true borrowing ratio similar to that of the right hon. Member for Old Bexley and Sidcup (Mr. Heath) in 1983.
What is the Government's scope for tax cuts? The Government prefer not to have open debate, as I said earlier, because of the weakness of their stance, hence the decision not to include the revenue forecasts and give a clue as to the fiscal adjustment. But the oil revenue forecast in the autumn statement is based on a nine-month forward price of oil of $26 and on the assumption that the exchange rate will not change much from its average level since March. In the light of recent events, both those predictions could look over-optimistic. The weakening in sterling oil prices through the rising pound has already knocked £1.5 billion off prospective North sea oil tax receipts, and that will be counted, as sterling falls, at the rate of approximately £150 million for each 1 per cent. depreciation in the currency. However, as the dollar falls in the oil price it could knock £500 million off oil revenue. That suggests that if the oil price falls below the forecast suggested by the Government's chief economic adviser, the Chancellor's scope for action on cutting taxes will be even more severely limited.
It is clear from the Queen's Speech, as has been said earlier, that the Government's intention is to have a consumer rather than an investment boom. The Treasury forecast for growth is 3 per cent. in 1986. That is higher than the weighted average of forecasts of various institutes that I mentioned earlier which is some 2 per cent. The Treasury forecast is 4 per cent. growth in consumer expenditure and if tax is cut by only 2p in the pound, that assumes an increase of real pre-tax earnings of more than 3 per cent., double the average for the 1980s. That is consistent with a high rate of growth in average earnings and falling inflation. It suggests that the Government are clearly hoping to ride into the election on the back of improved living standards for those in work.
In contrast, the investment position is much worse. The London Business School predicts an increase of only 1 per cent. next year, compared with the Treasury forecast of 3.5 per cent. The Chancellor has admitted that the bulk of the rise in investment in 1986 is expected to be in the private sector. That figure will be well down on the 7 to 8 per cent. likely to be achieved in 1985, which was boosted by the boom in anticipation of the ending of capital allowances, to which industry is clearly looking forward and is getting its investment out of the way in order to obtain those allowances before they end.
Export growth will slow down markedly and a number of forecasters are predicting current account deficits after 1987 despite the substantial contribution being made by North sea oil. Phillips arid Drew predicted a £1.5 billion budget deficit, but with an alarming increase in non-oil deficit to £16 billion. That is the price that will be paid by industry for the Chancellor's pre-election consumer boom.
The Chancellor has admitted that despite an increase in capital spending in the public sector, the mix between capital and current spending is much as before. That may seem surprising, given the exaggerated reports in some of the newspapers and the media when the autumn statement was published. The extra £500 million spent on council housing, hospitals and road building appeared to be quite substantial. That inspired leak at the time of the publication of the statement suggested that between 40,000 and 70,000 jobs could be created, at around £10,000 per job.
That remarkable conversion to the cost-effective virtues of capital spending is a surprise. Nevertheless, it is to be welcomed. It was only in December 1984 that the Prime Minister was condemning such proposals for investment in the infrastructure as not being cost-effective. The truth is that the shift from capital spending to current spending is still dramatic, and in our view there should be a further switch towards capital spending.
It has been estimated that the Chancellor's £2 billion spent on public sector capital spending will create 175,000 jobs. What is the actual position? Simulations in the report of the Select Committee on Treasury and Civil Service show that the equivalent of 2p in tax cuts would create 112,000 jobs on the London Business school model in four years, compared with 159,000 with increased Government spending. The National Institute of Economic and Social Research is more favourable to Government spending—199,000 jobs compared with 35,000. The parliamentary unit at Warwick university suggests, in the Select Committee report, that the Treasury model would also give a better outcome for public spending than for tax cuts.
The balance of advantage is clear. The Chancellor would do better to try a combination of a £1 billion targeted increase in capital spending and a 1 per cent. cut in the employers' national insurance contribution, which would directly help industrial competitiveness and increase the number of jobs created.
It seems that there is a fundamental incoherence at the heart of the Chancellor's economic policy. The medium-term financial strategy is clearly in shreds. We are left adrift with no compass to navigate between the financial rocks. If sterling M3 is no longer the overriding target of monetary policy and just one of a number of intermediate targets, what lies behind the Chancellor's monetary calculations? If there is no relationship between broad money and PSBR, what is the framework for the Chancellor's budgetary calculations?
There is no exchange rate target, only a suggestion that interest rates are set to bear down on inflation and hold the pound to around the average of the past two and half years—about 81 on the basket of currencies. That has now been blown off course. The Chancellor is operating with no framework and running the risk of the crisis which gave rise to the over-reactions of the market earlier in the year. That could happen again as long as we are unclear what direction he is going in, what indicators he is looking at and the framework within which he is operating.
The recent events in the oil markets have inevitably drawn attention to the fact that we are all unclear as to what the Government's strategy is. Oil spot prices for North sea Brent crude on the European markets currently range between $21 and $24. There has been intervention on the foreign exchange markets and the pound has recovered to $1.43, with the effective exchange rate up to 78.6 arid the pound-deutschmark rate at 3.61. The House will recognise that that is not a very stable situation. There is the possibility of a fall to $20 in the oil price and the risk of a precipitate fall below that. In our view, the Government must steer to avoid two dangers—first, the collapse of the oil price and, secondly, a free fall in the currency rapidly down towards parity.
In the past few months, industry has been buffeted by currency instability with the pound falling from $1.40 to $1.03, rising again to just above $1.50 and falling back to $1.41. Some of that instability is due to the market's perception of sterling as a petro-currency. Much of it is due to the Government's lack of strategy to deal with the problem. The effect of the oil price fall on revenues its not the most important issue, although it will pre-empt the Chancellor's scope for tax cuts. The Prime Minister is right not to put tax cuts before wider economic considerations. The danger is not that the scope for cuts in taxation and interest rates has been ruled out, but that the Government will launch another panic over-reaction and push interest rates up to prop up the exchange rate.
In our view, the Chancellor should use the opportunity to enter the European monetary system at a competitive rate. It was most encouraging to read the comments of the president of the Bundesbank when on 30 November in The Times he said that he would welcome Britain's entry into the exchange rate mechanism but that we should not enter at the "wrong" rate. He hinted at a realignment involving a further mark rise. Another possibility, which almost certainly would be necessary, is for the pound to enter in the wider 6 per cent. band.
Clearly, the movement in the market provides the opportunity for the Chancellor to reconsider his stance on full membership of the European monetary system and take the advice given to him by his chief economic adviser, the CBI and the Governor of the Bank of England, who all suggested earlier in the year that it would benefit British industry and the economy if the Government decided to go in.
Even if the Treasury's view is that the overall impact on the economy of the changes in oil prices is broadly neutral, the reality is that that neutrality is a roller coaster of upward lurches alternating with downward plunges. Obviously, OPEC will continue to exert a major influence over the price of our oil and therefore our exchange rate position. The only way in which the Government will be able to withstand the pressure and obtain greater stability is by international co-operation on the exchange rate and


oil prices. We urge the Government to work in cooperation with the European countries through the exchange rate mechanism in the European monetary system and with the OPEC countries in a way that the Government have not been prepared to do in the past, in order to try to get greater stability than we have had or which we shall have in the short-term future, in oil prices.
I hope that the Government will change the mix of their fiscal policy in the Budget in the forthcoming year. As I said earlier, all the current prospects are that the Government will, if they can, concentrate on cuts in income tax. We believe that a mix which includes investment in the infrastructure and cutting employers' national insurance contributions, and which acts directly to get the long-term unemployed and the less well-off back to work and on higher incomes, would be of greater benefit to the economy than the strategy pursued by the Government.
At the present time the Government's inflation strategy is being threatened by the higher pay settlements in the private sector. The other aspect that the Government have allowed to go by the board and to which they have simply paid lip service is any attempt to have incomes matching increases in productivity in a way that would stop inflation feeding on increases in pay. Such increases are simply not justified by the levels of productivity in British industry, although they are rising.
If the Government are to succeed in getting unemployment down, they will have to follow that strategy. They cannot get interest rates down unless they are prepared to allow the pound to come down and then to enter the exchange rate mechanism of the European monetary system, in order to get greater stability, which would be welcomed by British industry and would provide extra export markets and extra growth at home. That would bring many more jobs to the country and help to reduce the unemployment figures, which the whole House, including all my hon. Friends, want to see in the very near future.

Mr. David Howell: Several hon. Members, including the hon. Member for Stockton, South (Mr. Wrigglesworth), have mentioned the oil market, the speculation, mainly in oil futures, and the extreme volatility of oil prices.
My right hon. Friends are right not to be too exercised by what has been occurring in oil markets. We are seeing the Organisation of Petroleum Exporting Countries at last beginning to face reality. It is having to face the long descent from politically rigged oil prices. It is facing a world in which there will be less demand for energy in relation to output growth, and in which oil prices will be soft for many years to come. The seeds of the problem were planted in the attempt to keep oil prices too high in the early 1980s.
There is no need for the British Government to consider production control. I am glad that my right hon. Friend the Chancellor made it clear that that was the last thing that the Government intend. I welcome that. I am sure that it would be unwise for the British Government to become tangled up again in an attempt to control production, and force world crude oil prices to political levels, at which they would not stay.
There is no danger of a collapse in crude oil prices, although we shall see terrific volatility. The reason is that in the last resort the Saudis' interest in shooting themselves in the foot, by vast increases in production, is a limited interest. I do not think that they will do it. The Soviets, whose oil production has been a substantial influence on oil markets, are in some difficulties over their oil production. There is evidence that they are cutting back their sales on world oil markets. There is also the fact, which people overlook, that for the first time in the past 12 months or so oil has begun to become cheaper in local currencies in Europe. Hitherto, it has been much more expensive even than it was at the height of the oil price increases in 1979. We are now beginning to see the benefits of cheaper oil in local currencies in the European economies working through into European demand.
Therefore, the prospect is not of collapse but of a steady downward movement in oil prices from the ridiculous and unsustainable heights of the past. It is wholly beneficial to the industrial economies, including the British economy. Lower oil prices bring substantial benefits. They are part of a worldwide trend to lower raw material prices. We should not stand in the way of that development.
The pattern of lower prices of raw materials, including energy fuels, brings me to inflation. My right hon. Friend the Prime Minister has made clear her view that at present it is important for us to maintain a policy of relatively high interest rates, with a base rate of 11.5 per cent.—not 12 per cent. as the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) seemed to think, in an unfortunate and rather muddled speech. My right hon. Friend said that we need to maintain high interest rates to fight inflation, and we should not take any risks with inflation. There is no doubt that the struggle against inflation under the ministrations of my right hon. Friend the Chancellor, combined with the Government's policies, has been going extremely well. Most people confidently look forward to inflation rates being considerably lower next year. My right hon. Friend's figure is 3.75 per cent. by the last quarter. Even that may be pessimistic. It might be considerably below that. The battle on that front is going well.
I suggest—indeed, I assert—to my right hon. Friends that the main influence on the rate of inflation here in the United Kingdom is the international influence. Of course, there are both domestic and international infuences, but it is on the international scene that the main influences are at work. They are powerful influences downwards. If we look at the staggering figures of international prices for commodities, we see that import prices have fallen by 10 per cent. since March, and that commodity prices are down 28 per cent. in sterling terms since February. Across the world, we see the pattern of raw material prices collapsing in on themselves— for example, in foodstuffs, where there are vast surpluses, ruining farmers. We have seen some of the ructions working through in the tin market, and there is a suggestion that they are working through into the rubber market. Across the world, the raw material scene is one of falling prices and weakening returns. The oil price is only part of that scene.
The danger is not inflation, but that disinflation may turn to deflation. There will be substantial benefits for the United kingdom on the inflation front, but one has to ask exactly what additional contribution the policy of high interest rates is making. Substantially lower inflation rates


are anyway in prospect—and a very good thing too. It is hard to argue that among the many reasons for interest rates being high, the inflation reason is the main driving force. It is clear that there are much more powerful driving forces at work, which is a good thing.
Must we have a policy of high interest rates to hold the pound? Again, there is some ambiguity. After recent events, it is self-evident that the level of the pound in the short term will be settled by conditions in the oil markets, and not by fine tuning or adjustments in interest rates. There might be violent movements in the oil market—I do not think there will be — when any interest rate pattern that my right hon. Friends try to set would have little influence on the pound. We have seen the pound fall by 5 per cent. in three or four days, while the interest rate policy has been unchanged. Therefore, in a sense high interest rates have not worked in keeping the pound at a certain level.
Does that matter? It does not. Many people feel that we would be comfortable with a lower pound against the basket of currencies, possibly against the dollar as well. The rate against the basket is 77.9. There would be no difficulty for the economy if it were 75—if the deutschmark rate were lower than it is now, at 3.61, which is lower than it was a few days ago. Many people in industry, although with a little exaggeration, said that that was very much what they wanted. There would be no discomfort and a great deal of gain and enthusiasm if the rate were a little lower.
We have seen, first, that the policy of high interest rates does not determine inflation. This is settled by other forces. So is the proposition to keep the pound at an exchange rate of around 1.40 to 1.45 against the dollar and 3.60 to 3.70 against the deutschmark? Is that the purpose of high rates? Is that happening? There is doubt about whether the pound will keep to those rates. Even if it does, is it necessary? A lower exchange rate would be acceptable, provided there was reasonable stability. There is always a difficulty of enormous volatility for the Government. That is what is so unsettling. However, the economy could live perfectly well with a slightly lower dollar exchange rate, and very well with a lower exchange rate against the whole basket of currencies. Therefore, one has to conclude that interest rates are not decisive in terms of the exchange rate of the pound.
The Select Committee report, which was presented with his usual ability by my right hon. Friend the Member for Worthing (Mr. Higgins), expressed concern about competitiveness and the damage that is being done by high interest rates. However, the argument cuts against the Select Committee, too. Since it published its report, sterling has been devalued by 5 per cent. This shows that concern that is based upon the belief that a high interest rate policy is holding up the exchange rate, is based upon a substantial illusion.
Other arguments have been aired in the press about the need for a high interest rate structure. There is the argument that high interest rates are needed to maintain a tight monetary stance. Reference has already been made to the fact that Professor Minford says that the monetary stance is much too tight. Nobody, quite rightly, relies now upon the slightly absurd measure of sterling M3.
The new measure that has been put together that indicates the measure of the money supply—MO—is, according to Professor Minford, much too tight. He says that over a three-month period it has contracted and that

this should be changed. It is difficult to challenge Professor Minford's view that if the worry is about the money supply, interest rates should stay as high as they are. He thinks that they should come down. That is a considerable argument.
Another argument that has been aired in the press is that interest rates are high because unit labour costs are too high. This cannot be denied. There has been a spasm of management feebleness of, I regret to say, the familiar kind. Substantial pay increases in key areas of our export industries and manufacturing have been conceded, and they will have the inevitable effect.
First, the recruitment of new people into jobs will be reduced. Secondly, de-manning will be accelerated. Thirdly, the export performance of some of these firms will be weakened. That is regrettable. Whether there is a connection between interest, rates and industry's feebleness to face up to pay settlements, I very much doubt.
When I meet industrialists, I ask them again and again why they do not put very much more emphasis in their pay negotiations upon capital as well as income, upon profit sharing, upon share options and possibly upon share distribution schemes. I ask them why much more emphasis throughout British industry is not placed upon capital as well as upon income. In today's conditions, I believe that that would begin to take the heat off some of the very crude demands for more pay. At present, people just do not understand any other way of securing their position than to seek higher incomes.
If there were to be such a change of attitude, the urgings of my right hon. Friends, which are economically correct— that more wage flexibility is needed, that people should accept lower wage rates in order to clear the market, and that then there would be many more jobs and possibly jobs for all who sought them—would be right. However, when my right hon. Friends make speeches of that kind other people say, "Oh, I know what they are saying. They are saying that workers should take a cut in wages." It should be no surprise, therefore, if that is the interpretation of the message, that it is not received with great enthusiasm.
The other half of the message, in which wage flexibility should never be separated from anything that the Government, whom I support, say, is that, although it must be the aim of policy to go for wage flexibility and labour market reform, we must also aim at spreading capital ownership. We must ensure that capital and capital resources compensate for the fact that in many cases wages which clear the market will be rather low.
If hon. Members asked me to give an example of that, I should have to point to the vast growth in part-time work. Millions of people are prepared to take part-time work. It is convenient for them, and I see nothing wrong with it. However, part-time work inevitably results in part-time wages. The economy and our society are marching very fast in this direction, in a way that is almost unrecognised by economists, who consider only the formal, traditional. full-time employment sector of the economy.
In this new, completely different pattern of work, the case for wider capital ownership as a support and an additional resource— as it were, a second income support for the wage or salary—is very strong. I believe that the Government would be right to make wider capital. ownership their primary social goal. I know that my right hon. Friend the Chancellor of the Exchequer believes in. this. I know, too, that other right hon. and hon. Friends


of mine have said in many speeches that this is the right way forward. He is not sitting on the Government Front Bench now, but I know that my hon. Friend the Financial Secretary to the Treasury is dedicated to this concept.
We are now at the point at which one can say that the time for this idea has arrived. We are moving towards a different pattern of society: one in which the inflationary pressures caused by excessive wage settlements will be greatly reduced. Therefore, I hope that we shall hear very much more about this concept when my right hon. and hon. Friends on the Treasury Bench speak, perfectly correctly, about the need for greater wage flexibility so that more people can price themselves into jobs. That should be the way forward. However, it should be supported by vastly wider personal capital ownership of all forms. We made a start with British Telecom, and I hope that we shall go further with British Gas, but it is only a start. There needs to be a greater change of attitude towards wider capital ownership, which would affect nearly every family in the land.
I urge my right hon. and hon. Friends not to allow any gyrations in the oil market to affect their view about interest rates. Nor should anything that has happened in the last few days affect their views and intentions concerning tax cuts. I thought that I detected in the comments of my right hon. Friend the Chancellor of the Exchequer a change of emphasis: that he was revising his views about tax cuts and that he thought that in the next two or three Budgets tax cuts would be less likely. That would be a great pity.
The revenue outlook, which right hon. and hon. Members have demanded should be quantified, qualified and specified—I believe rather absurdly—has not, in broad terms, changed very much as a result of oil price movements during the last few days. If the pound is to move down in a perfectly manageable way, and if dollar oil prices are also to move down, the net effect on our revenues is virtually "even steven". On the other hand, tax cuts are absolutely essential if unemployment in particular is to be controlled.
However hard I listen to the rather high-minded views of people like the hon. Member for Stockton, South, I cannot understand why there is anything wrong with this argument. What the centralists—that is what they are, in both the Labour party and in the centre parties—will never accept is that people will help each other and will fulfil the obligation to give each other jobs and create employment if they are left with the resources with which to do so. If the hon. Member for Stockton, South is in any doubt about that, I urge him to visit countries which have smaller public sectors, lower income tax and lower levels of taxation generally than our own. I am thinking in this case of Japan, which delivers an unemployment rate of 2.4 per cent. How does Japan do that? Many people have the resources with which to offer jobs and create useful functions for others. They have the resources with which to pay them, provided that those resources are not taken away from them by taxation.
Apart from the social argument, it seems to me to be iniquituous that such a high rate of tax should be placed upon people on relatively low rates of pay. Furthermore, lower taxation is a powerful engine of employment. I am amazed that people, particularly those who belong to the Social Democratic party and who claim that they like to

stand back and look at things objectively, cannot penetrate and understand the argument that this is the way in which, increasingly, the economy works.

Mr. Wrigglesworth: In that case, why has there not been a substantial increase in employment during the past five years when taxes have been cut?

Mr. Howell: That is a matter of dispute. Some taxes have been cut, but taxes are high for those on low incomes, for part of the corporate sector and for small businesses. By my standards, we have hardly begun to make tax cuts. I expect much more in the future.
My message to my right hon. Friend the Chancellor is that he should stand by the stance that he has taken up, with characteristic robustness, stick to his former policy intentions and not be exercised too much by the gyrations in oil prices, which, at worst, will have a neutral effect and, at best, will be beneficial. I should like my right hon. Friend to bring down interest rates — obviously not rapidly, but at a gradual and steady pace. I believe that it is possible to do so without risking the other policy objectives. I should like my right hon. Friend to stick to the commitment to which we have aspired since long before 1979 to cut personal taxes substantially, to help those on low pay, to provide employment and to create a flexible, high-employment, fully occupied society.

Mr. Robin Corbett: It is incredible that the Chancellor stood at the Dispatch Box for exactly 30 minutes at the start of the debate and not once did the word "unemployment" cross his lips. [Interruption.] The record will show who is telling the truth.
The autumn statement, like all the others delivered by the Chancellor, misses out what I believe economics is primarily about. I hope that I take my colleagues with me on that point. Economics is about people— their development, the use and application of their skills and talents, and the production and provision of the goods and services that they need. It is not about economic indicators and mechanisms because, at best, they should be the servants, not the masters, of the people in local areas and the regions.
We did not hear one word or see even crocodile tears about the plight of most of the regions where most of our people live rather than in the relatively cosy south-east. The Chancellor, with typical modesty, spoke of the highest rate of growth since 1973. His statement mentioned a substantial increase in the number of people in work since 1983. He then added:
This has now been reflected in a levelling out in unemployment".—[Official Report, 12 November 1985; Vol. 86, c. 434.]
Not in Birmingham, not in the west midlands—far from it. My constituents and those in Birmingham and the west midlands are surprised and insulted when the Chancellor and other Conservative Members claim that things are well and getting better.
I do not expect any Conservative Member to take my word for it, but perhaps the Conservatives will listen to the Chancellor's points—the points that will be made by the right hon. Member for Waveney (Mr. Prior) on Sunday on Channel 4 in the brilliant "Writing on the Wall" series produced by our former colleague, Phillip Whitehead, who will soon be a Member again. The right hon.
Gentleman will say, "I have to admit in retrospect that British industry took much more punishment than I expected." He could say that again, although it is no surprise to any Opposition Member. At least the right hon. Member for Waveney—I pay tribute to him— shows more sense and understanding than the Chancellor of the Duchy of Lancaster showed last night or earlier when he made this fatuous comment about the west midlands:
You have got problems, sure, but they are not the same as the problems of the north or of Scotland. The problem here is a recessionary one. The West Midlands is not a place where there is a long history of the rundown of old industry".
That gigantic and appalling ignorance stands the facts on their head. In the west midlands there is not a single nationally known company in the manufacturing sector that has not in the past six years been scarred by job losses, under-investment and lack of Government concern or cash. About 1,300 firms in the west midlands went bust last year. The increase in unemployment has been higher than anywhere else — 3 per cent. above the national average, for the first time reaching 16.5 per cent. About 360,000 jobs have been lost in the west midlands—a drop of 16 per cent. All that the Chancellor of the Duchy of Lancaster can say in his paraded ignorance is that the problem is a recessionary one.
Some Conservative Members may be saying, "We know that that has happened, but this is now on the mend." I shall read a list of firms, mainly in manufacturing—some old, some new—which in the past five months have made people redundant in the west midlands: GKN Fasteners in Sandwell, 96 jobs; Metro Cammell Weymann in Birmingham, which makes buses when it is allowed, 40 jobs: Spicer Transmissions in Wolverhampton, 80 jobs; Accles and Pollock in Sandwell, 40 jobs; GEC Telecommunications in Coventry, 111 jobs; Dunlop Aerospace in Coventry, 86 jobs; Sankey Laminations in Wolverhampton, 125 jobs; BL Longbridge in Birmingham, 200 jobs; Cadbury Schweppes in Birmingham, riding on the backs of this so-called consumer boom, 350 jobs; Apricot Computers in Birmingham — new technology — 93 jobs; Massey-Ferguson in Coventry, 450 jobs; Lucas in Birmingham, 240 jobs; Birmal Castings in Sandwell, 100 jobs, and BSR International in Dudley and Stourbridge, 460 jobs.
Most of those job losses are in an already shrunken manufacturing sector which used to be at the heart of the west midlands' former prosperity. That list of casualties among major manufacturing names reads like the tombstones in an industrial graveyard, and more plots are being dug.
Last week, the Austin Rover Group announced that 600 toolroom jobs will go at its plant in Kingsbury road, in my constituency. These are the men whose skills and experience provided the tools to put British Leyland back on the tracks, to put new models such as the Metro, Maestro, Montego and Acclaim on the road. They built the tools to put the latest Roll-Royce Camargue on the road. Do we not need these skills any more? Are we saying that Birmingham, the west midlands or the rest of Britain has no need of these developing skills in machine tools? That is what the Government will say to those men when they go out of the door at the end of March.
Since 1979, jobs in the machine tool sector in the west midlands have decreased from 8,750 to 3,500—a loss of six in every 10 jobs. I beg Ministers to understand that, in talking about the machine tool sector, we are talking

about the heart of the manufacturing and production process. If we do not have the skills and the men to make these machine tools, we shall not have a manufacturing base that makes any sense. It is no surprise that, against the background of the Government's reckless attitude to the manufacturing sector, we now have the distinction, for the first time in our history, of importing more manufactured goods than we export.
Worse is to come. Doubt less Austin Rover will use the excuse of the closure of its once famous toolroom to buy the tools that it needs for future new models from West Germany and Japan. Indeed there is talk around Birmingham of a £7 million machine tool order for the Sherpa van going to West Germany.
That means we are putting at least part of future volume car production in foreign hands, with whom we compete head on in the market. What kind of economic strategy is that? It is the economics of bedlam.
Lack of research and development and lack of skilled men helped to run the former British Leyland into the ground under its former incompetent private owners. Even after the Labour Government stepped in to rescue it, it suffered from lack of research and development for new models for many years. It is stupid to risk making that mistake again because it will mean increasing reliance on imported machine tools.
The Chancellor, in his autumn statement, referred to a "levelling out in unemployment". I have to tell him and any of his remaining supporters that, at the end of November, 8,364 men and women in my constituency were jobless. This Christmas, they will find it hard to understand the "levelling out". There is virtually the same number of people now out of work as there was a year ago. That might be a levelling out in pure economic terms, but there are still 8,364 jobless people with little prospect of getting another job.
I return to the subject of Austin Rover machine tools. In the area around the toolroom, unemployment is running at 23.5 per cent.—2,454 men and 1,776 women. The rate of unemployment among women is now 28.5 per cent. Next door in Erdington, unemployment is 18 per cent. among men and 21.9 per cent. among women. In Stockland Green it is 23.3 per cent. for men and 27.9 per cent. for women.

Mr. Budgen: All this blubbering.

Mr. Corbett: If the hon. Member for Wolverhampton, South-West (Mr. Budgen) does not care, he should go to the Tea Room.
I know of many constituents in their mid-30s who are now in their fourth year of unemployment. Most of them will say that they do not believe that they will work again. Many of my hon. Friends know of similar people—and so should Conservative Members. What is the economic future for those people? I do not suggest that the Chancellor should have offered them jobs this afternoon, but his statement should have given them some hope that things will get better.
I do not understand the Government's so-called economic strategy. There is work that needs to be done in the city of Birmingham. One third of our housing is in urgent need of improvement and repair. With the present budget allowed by the Government and at the present rate of improvement, it will take 640 years to clear the backlog. The Chief Secretary should take note of that. No one can


say that this work would not provide jobs for people in the construction industry and in the supply industry. Are the skills in Birmingham and the west midlands for bashing metal about and making it do everything except talk no longer needed? Are there no homes which need to be repaired? Do none need improvement or insulation? Today there are tenants in both the public and private sectors who are offered places with outside lavatories. That is not peculiar to Birmingham.
Are the hospitals so well staffed and so well equipped that no money needs to be spent on them? Can no more work be provided through re-equipping them? Are our buses and trains so modern and wonderful that we can lay off men at Metro Cammell Weymann on the rail and bus section? The answer to all of these questions is no and a thousand times no. These are the jobs which the Prime Minister, when Leader of the Opposition, demanded. These are real jobs and it is within the gift of the Government to provide them by spending people into work instead of spending them out of work. The Prime Minister's earlier pleas have been stood on their head.

Mr. Maples: The hon. Gentleman has given us a long shopping list of public expenditure proposals which are undoubtedly worthy. Which taxes would he raise to pay for them?

Mr. Corbett: The hon. Member does not understand. If he does not understand now—

Mr. Maples: Which taxes?

Mr. Corbett: —he does not understand a thing. There is a cost in terms of pound notes and Girocheques passed over post office counters for keeping 4 million jobless. The simple answer is to spend some of that money, perhaps a quarter or even a third of it, to put people back into work. They will then pay taxes and national insurance and do the jobs that need to be done. The Member for Lewisham, West (Mr. Maples) is shaking his head. I have no hope for him. He puts his paw in the air and supports a Government who wilfully find it better to pour money into the dole queues than to put it where it is needed and where it will do some good. I despair of him.
The Chancellor's autumn statement is not devoid of feeling, but he does not recognise that there are people at the back of these statistics. Never mind talking about fiscal adjustments. People cannot tip them over a bowl of corn flakes when they are jobless. They do not know what M3 is when walking around a market wondering whether they can afford fish or meat once a week. People who are jobless do not understand that—I am being in no way patronising. They look to this Government—many of them in June 1983 regrettably voted for the Government —to give them some hope and belief that there is a chance that they can retrieve some dignity by having a job. People do not matter to the Chancellor; they are put on the scrap heap. All that matters to him are the figures. The Government want to reduce inflation to 4 or 3.5 per cent. even at the cost of another 250,000, or whatever it may be, unemployed.
I wish that Conservative Members could understand what I have said. It is not just a question of the misery of unemployment; it is a question of the loss of dignity, of self-respect, and of hope. It is like cutting someone's legs

off. The next Labour Government will alter the situation. We shall get Birmingham and the rest of the west midlands and Britain back into productive, wealth-creating work. We shall set about mending the hurt and harm inflicted by this wretched Government.

Mr. Roger Freeman: The prospect of speaking after my right hon. Friend the Member for Guildford (Mr. Howell) is daunting for Conservative Members because his analysis is always so clear and correct, but perhaps I might add a postscript to his speech on the effect of a falling oil price. He talked of the pound strengthening against the dollar as in some way balancing the effect of a falling dollar oil price.
It is important to be aware of the equation, which is that for every fall of $1 in the oil price, which would result in the Chancellor losing about £500 million in revenue, the dollar must fall about 6 cents against the pound. If we fall by $6 from the $26 that the Chancellor might be assuming for next year, we shall require a 36 cent fall in the exchange rate. I therefore treat the argument that there is a balance with some caution. However, I agree with my right hon. Friend that there is no need for panic because the fall in the dollar oil price, moderated by a strengthening sterling exchange rate, has a beneficial effect on the British economy in terms of lower industrial costs.
Like my hon. Friend the Member for Northampton, South (Mr. Morris), I support the autumn statement because keeping public expenditure broadly stable in real terms is right. It is working in his constituency and in mine. My constituency has had the fifth highest fall in the rate of unemployment in the past 12 months. That is a good record and bears out what my hon. Friend said about the beneficial effects of the Government's economic policies for the east midlands.

Mr. Robert Litherland: Everything might be all right in the hon. Gentleman's constituency, but the north-east of Manchester has lost 20,000 jobs since the late 1960s. Only one week ago, the last steel-producing mill in Manchester closed. There has been a devastating effect on the community, on the infrastructure such as shops, pubs and clubs and on the morale of people — so much so that the most recent closure resulted in four suicides. The Government's policy might be all right for Kettering, but there are other, inner-city, constituencies which are suffering.

Mr. Freeman: I share the hon. Gentleman's concern about the rate of unemployment. He is doing his job and I am doing mine. I am merely explaining what is happening in my constituency. I shall deal with the beneficial effects of public sector and private sector capital investment in creating jobs.
Paragraph 14 of the Select Committee report talks of the need to reintroduce information about future revenues in the autumn statement. It is important that the House has information in the autumn statement about predictions of revenue. That is not to say that the Government must disclose their hand on the PSBR or the fiscal adjustment. One would follow from the other if there was a projection of future revenues, but it is important for the House to have those projections for this debate.
In response to such a suggestion, the Chancellor told the Select Committee that the House can "make their own


assessments." It is important that the House has the benefit of work being produced by the parliamentary unit attached to the economic modelling bureau in the university of Warwick. I hope that its work will become more comprehensive so that the House and, perhaps, the Library, is informed of its findings before the debate on the autumn statement. We should be able to have a range of forecasts based on common assumptions.
Paragraph 31 of the Select Committee report draws attention to the fact that the Government's forecast of the increase in total investment in 1986 is 3.5 per cent. in real terms. A study of the Chancellor's answers to the Select Committee reveals that the private sector component will increase by about 5 per cent. and the public sector component will increase by about 2 per cent. I am well aware of criticisms made by the Confederation of British Industry and some sections of the business and industrial community about private investment. They argue that the ending of capital allowances has bunched capital investment and may end, let alone curtail, some investment schemes. Although there might be a bunching effect in 1985–86, what really counts when making private sector capital investment decisions is the level of corporate taxation. In four months' time, we shall have the lowest level of corporate taxation in the Western world.
Industrialists also consider the level of inflation. Like my right hon. Friend the Member for Guildford, I believe that inflation might be 3.25 to 3.5 per cent. next year. Using the average indicators of growth in GDP shows that real growth will be about 3-5 per cent. next year. Those three touchstones are vital for business investment. They are the fundamentals. There is another factor—exchange rate stability, which I agree is important when planning capital expenditure. I favour our joining the exchange rate mechanism, as it will improve the stability of the framework in which industrialists decide to invest.
Public expenditure is forecast to increase by about 2 per cent. in real terms next year. I have three suggestions. The first is made by the Royal Institute of British Architects and other members of the group of eight. I hold no brief for them. I share their views because I think that they are right, not because I have any interest. They say that what really counts is the stability of public sector capital expenditure in terms of quantity and consistency. Local authorities, the construction industry, architects and others want stability and long-term planning. The economy will benefit if they are confident that a given level of expenditure will continue for several years. That is especially true for the construction of schools and the building or refurbishment of council houses.
My second suggestion concerns private sector capital in public sector works. I draw my right hon. Friend the Chief Secretary's attention to the report of the steering group into water metering, chaired by Mr. Watts, published yesterday by the Department of the Environment. I believe that we are discussing expenditure of £1 billion to £2 billion to convert to meters for residential accommodation. I encourage my right hon. Friend to study the report, which I am sure he has not had time to read yet. This is an excellent opportunity to introduce private sector capital into a scheme which the report argues is a public good.
The companies in the industry would be only too happy to enter into a programme of conversion to water meters on the right terms, approved by the Government, so that consumers paid by consumption, not according to the

rateable value of their house. Construction companies would be prepared to pay the capital costs, and would cover the costs for 10 years, through an increase in the tariff to consumers. Clearly public sector capital expenditure could not afford the £1 billion or £2 billion involved in a full programme. That would be too much to ask of it in three years, if major centres of population were converted, but if the private sector provided the finance and the expertise, the job could be done.
Thirdly, my right hon. Friend the Secretary of State for the Environment is shortly to make an announcement about the housing investment programme allocations. If there is still time, as I believe there is, it is important for the Treasury to come up with a more imaginative formula for local authority housing expenditure. I accept the need for control using the percentage mechanism of spending past capital receipts. Everyone accepts that in past years receipts were taken into national accounts as revenue. Therefore, when any of those receipts are spent, they score 100 per cent. as public expenditure. My point is that there should be an incentive mechanism so that local authorities which are still sitting on major public assets are encouraged to sell them. They should be given above a certain threshold level in absolute sterling terms the right to retain 100 per cent. receipts and spend them.
I welcome the strategy announced in the autumn statement. It is welcomed in my constituency, and I hope that it will be welcomed in the country.

7. 11 pm

Dr. Jeremy Bray: The note of anger which my hon. Friend the Member for Birmingham, Erdington (Mr. Corbett) introduced into the debate will be heard increasingly in the country, and it would be foolish for the House and the Government to ignore it. It underlies the cold rational calculations which we need to bring to bear when our motives are in support of the human interests of our constituents. My quarrel with the Government is that they are not only cold-hearted, but addle-headed.
The Treasury Select Committee has done a valuable service to the House in considering the autumn statement and setting out the economic background to it. Paragraph 19, which notes the major change of economic policy, is the most important part of it. As the Chief Secretary to the Treasury was only a lad in 1980–81 when the policy was set out, I shall remind him what his predecessors in the Treasury said when the medium-term financial strategy was first defined in the 1980–81 Financial Statement and Budget Report. They said:
Control of the money supply will over a period of years reduce the rate of inflation. The speed with which inflation falls will depend crucially on expectations both within the United Kingdom and overseas. It is to provide a firm basis for those expectations that the Government has announced its film commitment to a progressive reduction in money supply growth.
In paragraph 16 they said:
To maintain a progressive reduction in monetary growth in these circumstances it may be necessary to change policy in ways not reflected in the above projections. The Government would face a number of options for policy changes to achieve this aim, including changes in interest rates, taxes and public expenditure. But there would be no question of departing from the money supply policy, which is essential to the success of any anti-inflationary strategy.
In the whole of the Financial Statement and Budget Report there was not one mention of the exchange rate.
In the Mansion house speech which the economic adviser to the Treasury told the Select Committee was the present definitive statement of the Government's monetary policy, there is no coherent definition of the nature of exchange rate policies. I hope that the Select Committee will continue to press the Chancellor of the Exchequer for such a definition.
The main content of the Chancellor's speech was, "Sorry, boys, about the tax cuts, but the promises are off." The reasons which the hon. Member for Kettering (Mr. Freeman) explained to the right hon. Member for Guildford (Mr. Howell), regarding the calculation about oil prices falling, and sterling falling against the dollar, and the figures balancing nicely, are phoney. The fall in oil prices will have a major effect on the scope for tax reductions, given the way in which the Chancellor sees the economy.
The practical effect on the economy is that there is today a more deeply rooted defeatism in British manufacturing industry than there has been for 30 years. We have had our crises and our long-term decline, but we have never before had the acceptance of that decline by leaders of Government and industry. One financial director told me:
We have learned survival. We may expand, but we do not expect to.
The autumn statement reminds us that profits have increased, both as a share in non-North sea oil income, and as a return on capital. That has been achieved by a cut of 25 per cent. of capacity in 1980–81, and by the continuing sacrifices of innovatory expenditure, research and development and the development needed in marketing, product development and manufacturing technology to provide the basis for long-term growth.
Such investment as there has been, has been stimulated by the transitional effects from the abolition of investment allowances, and it has not increased capacity. Innovation is not catching up with overseas competition, which is continually moving ahead. We cannot merely aim to compete today. It is when our developments must compete with the fruits of overseas developments that the test will come. Research and development in industry is not broad enough to give a generally competitive edge to sufficient technological leaders. Today, enterprise and initiative, such as they are, find an outlet in takeover bids, rather than in growth.
Regarding electronics, any one of the measures, including the fall in share prices, the recession in personal computers and microchips, lower profits from public purchasing by British Telecom and the Ministry of Defence, and cuts in participation in Government research programmes, such as the Alvey programme, on its own may not matter. However, the whole picture of the decline in the electronics industry, which was dramatically highlighted by the pathetic bid by GEC for Plessey, is of the gravest concern.
The collapse of power station ordering in the 1960s led to the gathering together of AEI, English Electric and GEC. The collapse in profitability of BT's ordering is leading GEC to try to create a monopoly in the supply of system X to BT. If that is the best that GEC can think of doing with its cash mountain, it needs a change of management.
In engineering, the British Steel Corporation proposal to close the Gartcosh cold mill, and its effects in undermining the viability of Ravenscraig in my constituency and in the home town of the Chief Secretary, has led me recently to talk to many people in operating management across a wide sector of the engineering and steel-using industries. It is not only Austin Rover that is affected, but General Motors—Vauxhall, Lucas, GKN and Tube Investments — the great mass of British engineering industry. Shall we settle for contributing only 30 per cent. of value added to the production of motor vehicles registered in Britain? That is the height of the Government's ambition today.
The improvement in productivity is undeniable. It is set out in chart 1.6 in the autumn statement, but that chart gives the game away. Even after cutting out the least efficient and the most backward 25 per cent. of manufacturing industry— as occurred in 1980–81 —productivity in the remaining most efficient 75 per cent. is growing only at the average rate since the 1960s. The Chancellor's reply to that is, "Ah, but that is manufacturing; look at services."
Let us consider services and the apples of the Chancellor's eye—banking, insurance and finance. The review of United Kingdom services in the September Bank of England Quarterly Bulletin is sobering reading. It shows a general decline in the ratio of exports to imports of services just as has occurred in manufacturing. The review traces the reasons for that to a general lack of competitiveness. Even the ratio of exports to imports in financial services has declined since 1979.
Despite the growth of activity in the City of London, its share of international lending has fallen from 25.3 to 23.7 per cent. and the British banks' share has fallen from 23.1 to 20.4 per cent. I am not advocating an increase in international lending, even by British banks; I merely point out that, although there appears to be great activity in the City, it is not holding its world position.
We are told that there is no measure of productivity in the services sector, and there is much in that argument. We cannot eat, drink or wear banking, insurance and finance. Some may be entertained by them, but that is a somewhat kinky taste. For most people banking, insurance and finance are a means to an end, to obtain food, clothing, shelter. However, has the ratio of food, clothing and shelter served by banking, insurance and finance improved? Manufacturing output has fallen by 6 per cent., but employment in banking, insurance and finance has increased by 19 per cent. since 1979. That is a fall in productivity of 25 per cent. in terms of physical output served per person in banking, insurance and finance.
Banking, insurance and finance, however, it can be argued, serve not only manufacturing output, but GDP as a whole. There has been a growth in GDP of 6 per cent., but a 19 per cent. growth of employment in banking, insurance and finance. That represents a fall in productivity of the services that they provide to the community of about 13 per cent.
It is argued that the service industries provide not only material goods — especially finance— but freedom, security and consumer choice. Indeed those are important, but consider the state of the country. Can we say that the freedom, security and consumer choice of 4 million unemployed is a net improvement against the asset dealers


of the City of London earning £200,000 a year? That is a strange, perverted view of what is being bought in terms of the changes in our society.
I agree with the right hon. Member for Worthing (Mr. Higgins) that the autumn statement is important for bringing together the expenditure and the revenue-raising side of Government decision-making in tentative form, in what the Committee called the green Budget. I share the Committee's regret that the improvement has not continued in that direction.
With my concern for science and technology on this side of the House I am thankful for small mercies. I am glad that there was a 2 per cent. increase in real terms in the science budget, which fulfilled the request of the Advisory Board for the Research Councils. A mere £15 million is trivial in terms of overall Government expenditure, but, as the Minister of State, Treasury will know because of his former responsibilities, that investment is vital for our long-term future. I am sorry that the further increases requested for later years were not included in that decision.
I return to the main issues of the autumn statement. Here we must consider our old friend, the exchange rate. The Select Committee asked the Chancellor whether there was a target exchange rate. I believe that that was the wrong question. Whether it is a target, a target band, or a target band with soft margins is the wrong way to see it. When considering the relationship of oil prices, interest rates, the exchange rate and the Government's actions in the long term on expenditure and taxation, it is first necessary to distinguish the Government's time scale for decision-making.
There is the annual round of decisions on taxation and public expenditure totals. In some companies, there is an annual round of decisions relating to their economy perhaps wages, budgeting, investment, and decisions are taken annually in most companies. In the shorter-term horizon of decisions and information, there are continuous variations in the exchange rate, asset prices, interest rates and in some key commodity prices such as oil. In the market, those vary from day to day and hour to hour.
In both the annual round and the continuous daily round, a set of objectives and a set of instruments are available to the Government. In the annual round an assumption is bound to be made about the short-term variables, like the exchange rate and interest rates. The autumn statement tells us that the assumption is made that the exchange rate is broadly continuing at the level of recent months. In the background forecast of the longer term, which the Treasury does not publish, there will be an assumption about the exchange rate and interest rates.
However, it is extremely unlikely that the short turm will turn out as assumed. Had a different exchange rate been assumed, a different interest rate would also have been assumed. The underlying decision, which the Government are beginning to recognise, is that there is a decision to adopt an underlying interest rate rule—on the way in which interest rates will be adjusted in response to changes in the exchange rate, and on the way in which the Government will intervene in the market in respose to short-term movements of the exchange rate.
The Treasury has improved its apparatus to consider the design of such rules in the medium term, in the annual decision-making round. I am sorry that Sir Terence Burns is no longer in the Box. He would confirm that the Treasury is using the methods and indeed the programmes

that were written in the programme for research and optimum policy evaluation at Imperial college, which I had a hand in establishing about 15 years ago. It will not be news to him that that approach is also being developed in the International Monetary Fund, and that its international reviews will be considered by such means, in a developing context of international economic cooperation.
The ways in which the short-term intervention and interest rate rules and the longer-term decisions on taxation and expenditure are combined are set out in the 1983 report of the Treasury and Civil Service Select Committee. That special report was published during the general election. It was not agreed by the Committee, but it contained several seminal ideas which, to the Committee's credit, are being implemented. In March next year there will be a conference at Brookings The preliminary conference took place in October and the Treasury contributed work to it. There is a progressive development. We are not told much about it in the House; I am not sure how much Ministers know about what is going on. Perhaps I should not tell them. The development will be of key importance to the Labour party when it begins to shift the goal posts and alter the objectives of economic policy.
It is sheer hogwash for the Chancellor to ask whether we shall simply accommodate inflation by devaluing. It is not a choice between accommodation and non-accommodation; it is a question of how much one accommodates, and how quickly the nationalised industries, which must consult the Treasury now on what the exchange rate will be in 1990, are being allowed to assume that there will be an improvement in competitiveness, which will be reflected by a movement in the index, and they are told that their assumptions are reasonable.
Complete non-accommodation may be a front which the Chancellor believes, from the traditional wisdom, it is necessary for him to maintain. It certainly exists in the structure of the European monetary system, but the real argument is about the extent and timing with which the changes in competitiveness between countries should be accommodated by the rate at which the exchange rates move. That becomes a properly formulated, sensible and practical question to ask. There will be differences in view and in priority among Governments, but the apparatus is there and is developing nicely.
I ask hon. Members to consider whether we are talking about joining the EMS of today or yesterday or the EMS of tomorrow. It will be rather different from the EMS of today, because it will contain an element of international economic co-operation. We shall have rules to say when parity adjustments are acceptable to take account of the underlying realities and different economies. I should like the Treasury to bring out of the back room some of its admirable work and put it into the negotiating process in the international organisations. Some people in those organisations—in the European Commission and in the IMF—are ready to listen.
On a more practical note, I have every sympathy with the Chancellor in trying to talk down the effect of the oil price on the exchange rate. Of course he is right to point to the fact that oil is only 6 per cent. of our GDP, and to the fact that Britain is a big consumer of oil, so that it will benefit from the reduction in oil prices as well as suffer a loss of revenues, but his argument would be much more convincing if he spelt it out more quantitatively than he


does, and if he were more practical in the way that he describes the intervention that he is making and is prepared to make in the economy.
I do not for one moment agree with or applaud the underlying direction of the Government's economic policy. The country has suffered from the most disastrous six years of economic management since the war, but the Opposition would be foolish not to take part in the necessary technical debates that will form the basis of a much more successful economic policy when we get rid of some of the hag-ridden prejudices on the Government Front Bench.

Several Hon. Members: rose—

Mr. Deputy Speaker (Mr. Harold Walker): Order. Several hon. Members still wish to speak, and it is clear that unless speeches are shorter, some of them will be disappointed.

Mr. Phillip Oppenheim: I shall speak briefly about the business expansion scheme, which in some respects needs reform. I should declare a small interest in that, before I was elected to the House, my company received venture capital funding through the business start-up scheme. As a result, 12 people are now employed who probably otherwise would not have been. Therefore, I am a friend of the scheme in general, because the business start-up scheme was excellent. I believe that the business expansion scheme is also generally excellent, but it has some severe problems.
Although farmland and property have largely been excluded, more than half of the investments being made through the scheme are still heavily asset-backed or retail-oriented. Pubs, hotels, restaurants, antique dealers and other such businesses feature largely in the range of BES investments.
I was told recently that a major multinational oil company wished to arrange business expansion scheme funding to allow petrol station operators to buy out their properties since, despite the huge multi-billion pound profits of the company, it believed that it could not afford the investment necessary in the property and equipment. That is not the sort of thing for which the business expansion scheme was intended, yet it would be legal and proper under the current rules of the scheme.
That sort of investment would be made anyway. The BES should help companies with good products and services which have difficulty in raising money and which would otherwise be unable to finance their operations. BES-oriented funds would be much more comfortable if such areas were excluded from the scope of the scheme.
While on the funds, may I say that I know of some feeling against them in the Department of Trade and Industry. However, they play a vital role in directing cash to the right areas and in helping start-up companies, especially with their management problems. Therefore, the funds should be considered far more favourably by the Government and they should be helped by being granted tax relief at the point at which the investment is made in the fund rather than, as is currently the case, at the point where the fund makes the investment in the relevant company.
However, at the same time, I recognise that some funds have been, to put it mildly, slightly dodgy. Considerable care must be taken in those areas. Many of the funds charge huge commissions on the money that they raise—commissions of about 20 per cent. are by no means unusual—and directors of many firms put themselves on the boards of companies in which they invest, often for large salaries. In addition, many of them take generous share options in the companies in which they invest.
Another abuse from which the scheme suffers is that some directors of companies that have raised funds through the business expansion scheme immediately take out large fees for themselves. Recently I heard about a managing director of such a company taking £50,000 out of the company as payment for his idea of setting it up.
I mention those matters as a friend of the business expansion scheme, not as its enemy, because there is a great danger that such abuses will discredit the BES and will be used against it by its enemies.
The BES should be geared much more heavily towards smaller manufacturing companies, and we could help it to move in this direction by excluding many of the sectors that qualify for its funding now, and by giving capital gains relief to investors in certain business operations. By doing we would go a long way towards dispelling the current feeling that many people wrongly have that the Government are somehow anti-manufacturing.
The pundits say, and many people believe, that we can look forward to a post-industrial service-oriented society, but manufacturing is vital to us. The service industries may be important, but the raw statistics of employment in the various sectors are misleading. They are distorted due to the failure of our manufacturing industry in the 1960s and the 1970s and to the tremendous growth of productivity in manufacturing. All this has given rise to the service industries taking a much larger share of employment than they would otherwise or than is healthy for the economy.
It must be recognised that many service industries are directly or indirectly dependent on the manufacturing industry. This explains why countries that have been most successful in their manufacturing sector have also seen the fastest growth in their service sector. Between 1950 and 1980, manufacturing employment has fallen by 2 million in the United Kingdom. On the other hand, service employment has risen by 5 million. In West Germany, over the same period, manufacturing employment rose by 2.5 million and service employment rose by 6.5 million. In Japan over the same period, manufacturing employment rose by more than 9 million and its service sector has seen a tremendous rise of 15.5 million jobs.
Vital though the service sector may be, overdependence on it is a dead end, and our future must be largely as a manufacturing country. At the same time, I strongly believe that the way to become a strong manufacturing country is not through public investment. Anyone who has seen the recent television programme "The Writing on the Wall" will have seen how, in the mid-1970s, politicians and bureaucrats under the aegis of the right hon. Member for Chesterfield (Mr. Benn) flung money at any ludicrous scheme that took their fancy. Politicians who have never worked in industry or run a business and civil servants are not the best people to direct investment. Surely Labour Members have learnt this by now. The French Socialists are now learning the lesson the hard way. The only way to get a strong manufacturing


centre is by making companies competitive so that they can produce what people want to buy, and not by pouring money into the economy.
It is tragic to see the tired, old, failed policies of public investment banks and boards being wheeled out once again by the Opposition. Will we go back to the mid-1970s when steel mills were built that the British Steel Corporation management warned the Government would not be needed, or are we to go back to the farcical old days of the National Enterprise Board, which pushed £38 million worth of taxpayers' money into an operation called Nexos?
Labour Members may well cringe of the mention of the name Nexos. It was dreamt up by Labour politicians and by civil servants as a company to rival IBM. The first thing it did was to give vast sums of public money—

Dr. Bray: rose—

Mr. Oppenheim: I am sorry; I shall not give way as many hon. Members are waiting to speak.
The first thing that the company did was to give vast sums of public money to a Mayfair head-hunting firm to head-hunt management at vast costs. During most of the years during which Nexos was in operation, its losses exceeded its turnover. It set up ludicrous deals to import Japanese equipment through middlemen at costs far and above those at which they could have bought the equipment themselves. Most of the equipment that it sold was Japanese equipment, and it made cost-plus deals with other NEB-backed companies for equipment that was never delivered in working order.
When Nexos finally went under, it was found to have a stock of Japanese fascimile machines that would have represented two years of sales. The company sold off 1,000 of the machines, for which it had originally paid nearly £2 million, for £1.
My advice to the Opposition is that, if they are thinking of directing taxpayers' money into pet industrial projects, they should put it instead into wine, women and song. The return will be the same but hon. Members will have far more fun.

Mr. Tony Lloyd: The hon. Member for Amber Valley (Mr. Oppenheim) made an interesting speech, although it was almost irrelevant to the needs of the majority of people. He was right about one thing, which is not bad considering that that is one more than the Chancellor achieved. He said that the future of the country depends on manufacturing industry. However, he fundamentally blundered, in the same way as the Government, in believing that a return to the mid-1970s would be anything other than welcomed in the part of the country that I represent, and many other places. For example, were we to go back to the mid-1970s, 725,000 people would have jobs in manufacturing in the north. In my area of the north-west there would be 300,000 more jobs than there are now, and that would mean that the rate of unemployment in the worst parts would not be above 50 per cent.
My hon. Friend the Member for Birmingham, Erdington (Mr. Corbett), who spoke about his area, was right. The utter failure of the Chancellor and his autumn statement and the ridiculousness of the motion that we are debating is that there is no real understanding of the

problems of our economy. There is an almost Mr Bumble-like arrogance from the Chancellor, who pretends that unemployment is not the issue that affects massive and important parts of the country.
It is hard to know whether the Chancellor is more like Candide with his simple-minded innocence and optimism about the future, or a much more devious and unpleasant character who has made a deliberate and cynical calculation. That calculation was accepted by the hon. Member for Kettering (Mr. Freeman), who said that he was representing his constituents and that we were representing ours. That is the Government's failure. They represent their narrow little interest in society and a narrow section of British society. They represent one region and have achieved that at the expense of the rest of the country, and of whole sections of the economy. They continue to destroy whole sections of the economy.
The statistics that the Government choose to parade as demonstrations of confidence do little for their credit. They must be able to do some things well simply on a random walk through the economy, but the rate of inflation in Britain is not significantly better, nor has the change in that rate of inflation been significantly better, than that of many of our trading partners. We depend on international trade, although the Government forget that.
Again, the improvements in productivity are not dissimilar to, even slightly worse than, those experienced by many trading partners. Some figures are devastatingly bad and ultimately dangerous, not simply for those who are unemployed but for those who face continuous unemployment into the future because of the ostrich-like policies of the Government. They are the figures that show how the Government have managed to turn a £3.8 billion manufacturing trade surplus in the mid-1970s into a deficit of £2.7 billion. In doing that, in their almost erratic lack of policy on sterling exchange rate, the Government have preyed on the manufacturing sector and all those who depend on it. That concerns not just employment but the long term skill base of our economy.
The Government have made the future so uncertain that manufacturers do not invest. The House of Lords Select Committee on Overseas Trade examined investment. In the conclusions to the report, Sir Terence Beckett was quoted as describing the rate of net investment in all industries as
a Cresta run, going down from 1964, right the way through to an all-time low in 1981.
The report went on to say:
the Committee were concerned to find that of firms surveyed by the CBI in October 1984, 77 per cent. were investing to improve efficiency but only 20 per cent. were investing to expand capacity.
That is what happens in an economy that is essentially defensive and where manufacturers and virtually the whole of the commercial and trading sector have no confidence in the future put forward by the Government. The Government's approach has created defensive, job-destroying investment instead of the creative, expansionary investment which Conservative Members pretend is taking place.
The Government have talked about the bold new economy and the sunrise industries which will take the place of what the Government regard as the clapped-out industries but—

Mr. Martin M. Brandon-Bravo: Will the hon. Gentleman retract or modify his


remark about the industrial Cresta run beginning in 1964? Will he tell the House which Government were elected in 1964 and why the Cresta run was so steep from then on?

Mr. Lloyd: That is a remarkably intelligent question for the hon. Gentleman. Little purpose is served in trying to score points on the decline of manufacturing industry. Conservative Members must face a more fundamental question: are the Government's policies even remotely relevant and are the policies sound which have destroyed jobs in manufacturing every year since the Government took office? Do these policies which are systematically creating a gap between the south-east and the rest of the country, offer a future for the country? If the hon. Gentleman would care to join that debate, we could discuss the issue now. I would welcome the opportunity to discuss how to restore manufacturing investment and to reverse the trend that is revealed in the House of Lords Select Committee. We could try to find a solution to the failure of the so-called unrestricted business sector.
My constituency boasts a plant owned by GEC, the biggest private manufacturing company in Britain. It systematically destroyed jobs on an enormous scale simply because it would not replace the investment that was created in Manchester.

Mr. J. F. Pawsey: Will the hon. Gentleman give way?

Mr. Lloyd: I shall give way in a moment.
Instead, it invested in different parts of the country. By its own chosen course, GEC has systematically destroyed jobs in one part of the company in order, to a lesser extent, to create jobs in other parts of the country.

Mr. Pawsey: I hope that the hon. Gentleman will not denigrate GEC too much. GEC has secured the largest export order ever, the provision of turbines and allied equipment for Castle Peak in Hong Kong. The hon. Gentleman will also know that through its expertise, GEC is likely to obtain another substantial order from mainland China. With respect, GEC is one of our better industrial companies. It should not be denigrated as it is a company which provides substantial employment, not least within my constituency.

Mr. Lloyd: I join the hon. Member for Rugby and Kenilworth (Mr. Pawsey) and pay the fullest tribute to the skills that my constituents have in the engineering industry. I deplore the scrapping of their skills by companies, either by GEC or others, in my constituency or in the country as a whole. I deplore the fact that this country is becoming a de-skilled nation.
It was skilled employees who created companies such as GEC and not financiers who treat companies as a merchant bank. Firms are created on a skill base which creates products within the engineering industry and elsewhere and allows us to sell to Hong Kong and China. We ought to be encouraging the engineers, not the merchant bankers.
Conservative Members talk about information technology, which is one of the newer industries and a great hope for the country's future. However, the National Economic Development Office reported that information technology may not be able to survive as a serious independent industry in Britain. Britain may have no role to play in the

future of that industry because of the failure of the private sector to invest early enough and do the job which Conservative Members would have us believe they are doing.
The Chancellor talked about the value of privatisation and said that the extension of share ownership would turn us into a property-owning democracy. However, we have seen the failure of privatisation programmes. For example, we saw the failure of the privatisation of Cable and Wireless, which was grossly undersold and oversubscribed by a factor of 100 per cent. That is clear evidence that the Government have bumbled in the sale of precious national assets which should have been harnessed for the benefit of the nation and not against it.
Jaguar was one of the Government's acclaimed success stories and there were 125,000 shareholders. However, I am sure that the House does not need to be reminded that 125,000 form a small proportion of Britain's unemployed. I would hazard a guess that very few of the unemployed took part in that share deal. The proportion who did so became even smaller eight or nine months later when the number of shareholders fell to one third of its original number.
The reality of privatisation is that it involves flogging assets to the friends of Conservative Members. The Government are almost arrogantly disdainful of the needs of the rest of the nation. Their privatisation policy is based on the wonderful calculation that there will be tax cuts, and these are now jeopardised because of the Chancellor's non-policy on sterling exchange rates.
The Government want tax cuts that will favour those in society who already have at the expense of those who do not have. That is a nasty view of society. The Government are bribing a majority, a bribed coalition, and they are doing so at the expense of those who cannot afford to pay for the bribes. As I have said, the Chancellor may have forgone the ability to offer the bribes because of his non-policy on exchange rates, his non-policy on oil depletion and his non-management of the economy in any meaningful sense.
The tragedy is that the Government are stupid. They cannot understand the real economy in which ordinary people live. They are deliberately and unpleasantly cynical in their approach to the management of that economy and they ignore the real problems.

Mr. Stephen Dorrell: The speech of the hon. Member for Stretford (Mr. Lloyd) started very well. In fact, I thought that the House would be indebted to him for being remarkably frank when he talked about the importance to Britain of its trading partners. He stressed the word "partner", as opposed to competitor. That was an interesting new gloss to the Labour party's official policy on international trade. That is not quite the same as the "planned trade", about which we were told at the general election.
The hon. Member for Stretford talked about the problems faced by some of our manufacturing industries. He said that those problems, as my hon. Friend the Member for Nottingham, South (Mr. Brandon-Bravo) rightly observed, started from 1964. The hon. Gentleman was right to say that that trend was a long-lasting one embracing problems which have become deeply rooted which rather undermines the Opposition's challenge, who suggest that the problems started in 1979.
The pundits in the press have published comments on the autumn statement which have concentrated on what I regard as an absorbing but essentially uninformative debate about whether there has been an adjustment in the fiscal balance. My right hon. Friend the Chancellor of the Exchequer made it clear that there can be no proper dispute about that because the revenue side of the equation is still missing.
A more interesting debate arose in the autumn on the need to consider the shift that has taken place since 1979 — it has been the subject of speeches from hon. Members on both sides of the House—in the method of assessing monetary conditions in the economy and the implications of the changes and shift for the mass of economic policy. The shift in policy has been reasonably open despite the admonitions of the Select Committee on Treasury and Civil Service that the policies of my right hon. Friend the Chancellor of the Exchequer were not clear. I believe that my right hon. Friend's policy has become relatively clear over the past few months. It is a shift of policy which I welcome warmly because the emphasis on the exchange rate, which has been re-stated, seems to be entirely right.
In his speech at the Mansion house, my right hon. Friend the Chancellor of the Exchequer rehearsed some of the shortcomings of the different statistical measures of money supply on which monetary policy relied in the Government's early years. Those of my hon. Friends who know my views on these issues will not be surprised to hear that I agree with every word that my right hon. Friend said about the problems of monetary aggregates. He concluded the relevant passage of his speech at the Mansion House by saying:
When, as now, signals from the various measures of money become difficult to interpret, the exchange rate inevitably assumes an increased weight in monetary policy decisions.
I wish that it were inevitable that the exchange rate took the strain when monetary aggregates became obscure. I do not remember a time since being elected to the House when the signals of the various measures of money were not difficult to interpret. I remember occasions when my right hon. Friend's predecessor found the signals difficult to interpret, but insisted on trying to do so, instead of doing what my right hon. Friend now happily regards as inevitable and concentrating on the exchange rate. I fear that on occasions my right hon. Friend's predecessor, who is now the Secretary of State for Foreign and Commonwealth Affairs, was led to what I regard as false policy conclusions. I warmly welcome the shift of emphasis which is now apparent. As I have said, I regard it as entirely right.
I wish to consider the implications of the change of emphasis and the importance attached to stable exchange rates for the rest of the Government's economic policy. Before doing so, I shall repeat some of the arguments which I have advanced previously which outline why I believe that stable exchange rates are so important. First, I believe that the exchange rate is by far the most accurate measure of monetary conditions in the economy, and in any economy, at any time. It is a basic law of supply and demand. If excess credit is created, the exchage rate for that currency will fall as the supply of the currency exceeds the demand. By contrast, if there is excess tightness in credit creation, the rate for the currency will rise on the foreign exchanges. That is exactly what happened in 1980 and 1981.
Furthermore, I believe that a stable exchange rate is an essential prerequisite to a successful policy for controlling inflation and producing sound money. In reverse, fluctuating exchange rates have undermined successive Governments' attempts to control inflation. That was the position throughout the 1970s.
My right hon. Friend the Member for Worthing (Mr. Higgins) said that he found himself in sme difficulty, as the monetary aggregates appeared, certainly for sterling M3 figures, to be moving well outside the Chancellor's previously announced target. He felt that that might suggest that monetary conditions were becoming too lax. I suggest to my right hon. Friend and to the House that it would be right to be concerned about unduly lax monetary conditions at the moment when the exchange rate began to fall. For as long as the rate remains reasonably stable, as it has in recent months, there is little cause for concern.
My right hon. Friend the Member for Guildford (Mr. Howell) spoke about the 5 per cent devaluation in the exchange rate over the past week. I must remind him that the movement has been barely 1 per cent. when measured against the international trading basket, and nowhere near 5 per cent. My analysis suggests that at the moment monetary conditions are not unduly lax.
My second reason for supporting a stable exchange rate policy, apart from inflation control reasons, is, if anything, more important. Proper emphasis should be placed on finance being the servant of trade. A stable exchange rate underlies the ability of any private or public sector company to make reasonably long-term plans for the future of internationally competitive activity. Just as fluctuations in the exchange rate during the 1970s undermined Governments' attempts to control inflation, so there is incontrovertible evidence that fluctuating exchange rates have damaged the growth of world trade.
Between 1955 and 1973, when exchange rates were broadly stable in the Western world, world trade grew by 7.5 per cent. per annum. Since the breakdown of that stable exchange rate regime, the rate of growth of world trade has slowed to 3.3 per cent. per annum. Fluctuating exchange rates are the greatest and most important of all non-tariff barriers to international trade. The hon. Member for Stretford underlined the importance of trade, and so do I. Stable exchange rates are an essential prerequisite to reaping the benefits that can come from growing international trade.
If stable exchange rates are important, and if my right hon. Friend is right, as I believe he is, to shift the emphasis to secure a stable exchange rate, what are the implications of such a shift? It is important to recognise that the move to a stable exchange rate did not happen overnight on 17 October. The City pundits did not leave their offices at 5 o'clock that evening to dine with my right hon. Friend the Chancellor of the Exchequer and open their offices on the following morning to an entirely changed world. There has been a steady shift, which I have welcomed on previous occasions, and which I am happy to welcome again, away from the concentration on monetary aggregates towards a concentration on the exchange rate. My right hon. Fraend's speech at the Mansion house is the most recent and strongest example of that move.
It was my right hon. Friend the Leader of the House who as long ago as 1980 described sterling M3 as a wayward mistress. Perhaps we can now describe it as a jilted lover. My right hon. Friend, like many men after a torrid love affair, cannot quite bring himself to cause the


affair to come to an end. I wish that he could conjure up the courage to follow his convictions to their logical conclusion.
There is suspicion in the markets that the Treasury will use any convenient argument to support its monetary policy of the moment. In the old days there was a clear policy of following sterling M3, and that has thankfully fallen away, but it is said that there is no clear policy in its place by which the Government have announced that they will determine their monetary policy. I prefer clarity, and it is in the interests of the Government and my right hon. Friend's policy to control inflation, to underpin the growth of world trade and to make it a clear policy commitment to maintain the present level of sterling.
I can think of no better way of taking a further step down that road and clarifying that objective than for my right hon. Friend to join the exchange rate mechanism of the EMS. I do not pretend that that is a magic ingredient that will conjure away all the pressures in the foreign exchange market. Still less do I advocate that policy by way of Euro-enthusiasm. I support it because I believe that it would underline my right hon. Friend's seriousness in retaining the exchange rate at its present level. In the relatively short term it would allow him greater room for manoeuvre in easing down interest rates without undermining the exchange rate, which I regard as of great importance if we are to continue to control inflation and keep monetary conditions under control as well.
If we are able to maintain sterling at its present level, the key issue confronting policy makers in the Government and the private sector will be how to maintain and improve the competitiveness of our manufacturing and service industries. I draw no distinction between the two. To do so seems to me to be indulging in an argument about nothing. We must ensure that both our manufacturing and service industries are competitive and able to win increasing shares of world markets.
I have no doubt that in the short term the competitiveness of our manufacturing and service industries is a function of their wage bill, and that my right hon. Friend's policy of stabilising sterling is effectively serving notice on weak managements — which were, rightly, criticised by my right hon. Friend the Member for Guildford — that the Government will not bail out managements which concede excessive wage increases, by allowing sterling to devalue on the foreign exchanges. The Chancellor is right to stress that in present circumstances and to insist that it is a key issue for industrial policy makers.
The statistics speak for themselves. Average earnings in Britain are now rising at between 7 and 8 per cent. per annum. In manufacturing industry — the sector that is supposed to be subject to special international competitive pressures—they are rising by 9 per cent., against 4 per cent. in Japan and 3 per cent. in Germany. If we are to concentrate, as we should, on international competitiveness, those wage pressures are a key priority in the short term.
In the longer term—assuming that we can maintain a stable exchange rate and control inflationary wage pressures — we must increase our ability to build businesses for the future that are internationally competitive. That is why the policy advocated by the House of Lords Select Committee based on a devaluation

of sterling is wrong. The Committee argues that in 1980–81 the high rate of sterling killed off some activities that could have survived and made a contribution. I argued for the policy then and I still believe that it was right. I agree with that analysis.
The House of Lords Committee goes on to argue that we should now devalue the currency to allow that type of activity to re-emerge. I could not disagree more strongly with that point of view, because that policy would have us invest in precisely the capacity which was shown in the early 1980s to be at the margin of international competitiveness. It would be a fundamental misallocation of investment resources, and a devaluation policy, to the extent that it was designed to achieve that result, would be ill-conceived.
The House must accept that there is no going back—however we might have done things differently in the early 1980s—and that we have no choice but to concentrate all our effort on the creation of high value added industries that are able to hold their own and win in international competition. I do not have the time to discuss the methods by which such a policy could be brought about, but if the House of Lords was wrong to concentrate on devaluation as a way of achieving it, it was right to concentrate attention on these issues.
There is a tendency among some of my hon. Friends to say that private enterprise will supply these activities —that the hidden hand of the market will act and that these things will emerge naturally — but those who believe that are naive, and I hope that Ministers do not believe that it is so simple. If they do, they take a different view from comparable Ministers in comparable economies in the world.
A stable exchange rate at today's rate is a highly ambitious target for any Government to set. It requires a quantum leap in the value added that our industry can provide. Few British companies have at this time the scale necessary to secure the benefits of market leadership at an international level. In many fields of high value added economic activity, Britain not only does not have a leading company, but does not have a company that plays in the first league. Ministers have set the right goals, but they are ambitious ones. We have a great deal to do and little time in which to do it.

Mr. Austin Mitchell: I shall not attempt to follow the hon. Member for Loughborough (Mr. Dorrell) in his Roy Jenkins memorial lecture in favour of joining the EMS because that was the point at which his speech began to go wrong. That device would shackle our economy to that of the superior might of West Germany and reduce us to the periphery. I leave the hon. Gentleman's argument there.
I will concentrate on the autumn financial statement, which, in my brief period as a member of the Treasury and Civil Service Select Committee — it seems longer at times than is the case—is perhaps the worst autumn statement that I have ever seen and with which I have had to deal. It is a misnomer in every respect: it is not autumn but early winter, it is not financial because it is deliberately designed to conceal the financial mainsprings of the economy in the way that Victorians put shrouding round piano legs, and it is not a statement but much more a


confidence trickster's manual. The economics of the artful dodger is embodied in that document. It is essentially an exercise in fantasy.
It is interesting at this juncture in the history of the present Government to see what happens under the counterjumperocracy, as Julie Birchell called the leadership of the Conservative party. It is a brilliant word because it sums up the shallow self-made men and women who worship their creator and who have led the party, people of no class and background, people with a simple blinding idea which has turned out to be a busted flush. In desperation as they try to find a way out of the trap into which they have marched and have led the country so confidently, when their policies do not work, their true natures come out.
We have the Prime Minister running round the world like Reagan's clucking hen, clucking wherever she is able; last night we had the semi-housetrained polecat routine from another whose true nature was coming out; and in the autumn statement we have the politics of deceit—[Interruption.]—because .it is essentially a deceit.
Last year the Chancellor found that his forecasts of revenue and expenditure were so fantastic and so disbelieved by the financial community that they led directly to the January financial crisis. His solution was not to give better and more sensible forecasts but not to give any forecasts, and that again will lead to problems because of the ignorance in which the market has been asked to operate. He has chucked overboard the compass—M3, which has led us from reef to reef, from shoal to shoal and from disaster to disaster—and, it having been chucked in the sea, it no longer counts after all these years.
The right hon. Gentleman has suppressed key information. He has suppressed information on Government revenues and on the fiscal adjustment, and we need to know both of those to judge the policies. He has concentrated throughout on over-optimistic assumptions about the economy, trade and exports. Exports will suffer and trade will become more competitive as the dollar goes down.
The Chancellor has made over-optimistic assumptions about productivity growth, which will not improve in the way it is said to improve; he has made over-optimistic assumptions about investment, which will not increase in the way it is said to increase; and he has made overoptimistic assumptions about the oil price and the exchange rate.
Lump all those over-optimistic assumptions together, put them with the techniques, and we have not an economic document but a confidence trick. It has been compared with Voltaire. As it has been panned and as it glosses over the facts, I suppose that we could call it Panglossian. That is about its only relationship with Voltaire.
The document tells us more about the psychology of the man who happens to hold the position for the moment of Chancellor of the Exchequer than it does about Britain's economic prospects. It tells us something about a cocky, brash personality who deep down is really shallow. It tells us, in the words of Dryden applied to Buckingham, about the economics of a man who has moved from devaluationist via Zurich to a high-wire act. Dryden said, and it is true of the Chancellor:
Stiff in opinions, always in the wrong,
Was everything by starts and nothing long.
But in the course of one revolving moon,

Was chemist, fiddler, statesman and buffoon.
Railing, praising were his usual themes
And both (to show his judgement) in extremes.
Squandering wealth was his particular art,
Nothing went unrewarded but dessert.
That has gone unrewarded in this economy—the dessert of the real people who make real things, who occupy real jobs in real industry. All of that has been sadly neglected by the present Government.
Why should we have this sordid little document? My explanation is simple and, I think, accurate. The Government are changing course — at least, the Chancellor is changing course for them — but they cannot admit it because they have made a virtue of not changing, of not even turning, even when it is necessary to do so.
They have made the consistency of being wrong their main political virtue. However, the policies have not worked. Our average growth since 1979 — we must include 1979, regrettable though it may be for the Government—is about 1 per cent. Leaving out oil, it is 0.5 per cent. They cannot deliver that which was promised —the tax cuts and benefits—as a result of the new policies that were to turn the economy round. They cannot deliver so they must turn round, because not only can they not deliver; they have inflicted incalculable damage upon the economy, in particular manufacturing, on which this country depends.
There are 4 million unemployed people. We have the highest unemployment of any major industrial country. There has been a loss of 28 per cent. in manufacturing jobs —1.8 million people — the hard core of our unemployment. There has been a wind-down in the basic drive motor of the economy which has produced a national decline.
Even the benefits that the Government claim will result from their policies have turned to dross. The productivity increase that really comes from shooting the last four or five batsmen in a cricket team to improve the batting average has now slowed down, but it was always lower than that of competing economies. It is now reduced to the rate at which it was increasing through the 1960s and 1970s, which was one of the slowest in the world.
Inflation, to which the Government have devoted so much effort, is still higher than that of most of our major industrial competitors. Our labour costs are rising faster than those of most of our major industrial competitors. The Treasury has now become completely confused about labour costs. It says that people should price themselves into jobs and that labour costs should be held down, but, in contrast, it says that to compete in the international trade sector price competitiveness does not matter; it is not important. If price competitiveness is not important, labour costs are not important. The Treasury cannot have both theories. The two are completely inconsistent.
To retain their market share and survive, our firms are now taking, and will increasingly take, cuts in profits. That will lead to cuts in investment, cuts in research, cuts in design and cuts in all the methods needed to improve the non-price competitiveness of our goods. That will all be thrown overboard to enable industry to survive the difficulties that it will face. We have already seen the trends in firms such as ICI which is investing overseas because it cannot invest in our economy given the overvaluation of sterling.
If our competing industry—the sector upon which we must depend for survival — were healthy, its health should be apparent at this stage in the cycle when the Government have had six years to remedy what they call the fundamental defects of our economy. How healthy is that internationally competing industry? We have a huge and increasing deficit in information technology. Imports are increasing and dominate the market. That sector is suffering badly. In chemicals, production is being transferred overseas. Engineering is a black hole in the economy for all practical purposes. With regard to electronics and telecommunications, we should consider GEC—a cash mountain rather than a major productive asset. Consider, in particular, Standard Telephones and Cables and its misfortunes. Let us consider Plessey which is reduced now to a fiddler. How healthy is the sector? What are its prospects for survival in a world that will become tougher as the dollar falls? Our exports will face increasing competition.
Services are supposed to be the answer to our problems. Our share of the world trade in services has been declining at the same rate as our share of world trade in manufactures. Services are healthy only because it is much more difficult to import them. It is difficult to import hairdressers, although some people may prefer that. As my hon. Friend the Member for Motherwell, South (Dr. Bray) said, there is an increasing propensity to import in that sector. Our multinationals, the basis of our worldwide survival, as the book by Stockford and Turner shows, concentrate on the low-tech sectors—food, tobacco and drink. That sector is slow to change. We are not competing effectively in the sectors which are crucial to our survival.
All the sectors which should be leaping ahead, given the stimulus of what the Government are supposed to have done, have been weakened and are much less competitive and effective.
The Government's policies will not work. If the Government are to have any credibility, they must produce some benefits—some of the tax cuts that they promised. How can they do that with policies that will not work? The autumn statement is the answer. They will raffle off public assets to provide tax cuts. They are selling what belongs to all of us to give tax cuts to some of us. They promised that the tax cuts would come from increasing the productive capacity and the power of the British economy. They have not. But they are still giving the cuts. That is the essence of a confidence trick.
The Government must change in that fashion because the Prime Minister is incapable of change. She can change on things that do not matter—televising the House of Commons and conveyancing for building societies. On those she can say one thing one minute and another the next. On the basic issue of national survival she cannot change. She must pursue her policies. Change must be smuggled past mummy like a naughty boy smuggling a dirty magazine—the autumn statement—past mummy's bedroom when he comes in late at night. That is what the Chancellor is doing with the autumn statement.
The Prime Minister, with the certainty of the second-rate mind, will persevere with her policies. We shall have a reflation which the Chancellor hopes that the City, the financial community and international financial opinion

will not notice but which he hopes that the voters will notice. It will be a selective confidence trick dangled before sections of the community.
We are to change to Reaganomics three years late. It is interesting to note that the United States and British Governments took office committed to the same lunacies. By August 1982, finding his policies impossible to pursue, Reagan changed his lunacy and went in for a massive Keynesian expansion. The Chancellor has, three years late, learnt a lesson. Three years after Reagan abandoned Thatchernomics we shall embrace Reaganomics. We shall have a loose fiscal policy — stimulation by flog-offs, resulting in a massive £4.75 billion.
Council house sales and all the other flog-offs must be added to that. They have been diligently researched by my hon. Friend the Member for Sedgefield, (Mr. Blair). Those sales will double the amount raised to almost more than the public sector borrowing requirment. Flogging off has reached its highest level under this Government. Their policy is stimulation by tax cuts financed by the
flog-offs, coupled with a tight monetary policy. Our economy has a limitless future of high interest rates strangling investment. In other words, we have a Chancellor who will combine the best Tory traditions of economic management. He will combine the fiscal stance of a Barber with the monetary stance of the Foreign Secretary, the former Chancellor. The two Tory elements that had the most disastrous results for the economy are to be combined by the Chancellor.
The Opposition welcome any expansion of the economy. The problem is that it is five years too late—five years of lost growth, production and investment and five years of descent into a nastier, more enbittered society. The Church of England speaks out and the Government resent that as an attack by hostile Marxists. Even the only religious organisation still on its knees—the CBI— criticises Government policy. There have been five years of misery and decline.
The Chancellor at last realises the folly of what has been done and is beginning to change. Even this Chancellor has learnt that we must be grateful for big-built but small-brained mercies. The problem is that the change is not enough. First, it is risky. He is gambling on oil prices and the exchange rate. Neither gamble is justified. As the oil price comes down, to try to safeguard himself the Chancellor will have to screw up the exchange rate with higher and higher interest rates. It would be all right if he let the exchange rate come down. We should have a stimulus for the economy from the bonus of cheap oil. He will not allow that to happen, so the gamble is risky.
Secondly, the change is irresponsible. The money is there for tax cuts. There is a chorus of demand from Conservative Members. They say, "Where is the money coming from?" They are simple-minded economists. The money is there for tax cuts from flogging off public assets. It is not there for doing anything useful such as expanding the British economy, for public spending, for housing, for rebuilding the infrastructure or for alleviating all the problems of this country. It is there to shove into people's back pockets. That is essentially wasteful and irresponsible. It does not provide the stimulus to the real economy that public spending would provide.
All such a technique achieves is to stimulate the purchase of imports. It is creating a position in which people will rush out and spend money on Japanese video recorders, German cars, French kitchen equipment, Italian


washing machines and all the other items whose purchase does not result in jobs in this country. The headline in The Economist—"Vote buying starts early"—was correct.
During one sitting of the Treasury and Civil Service Select Committee, I accused the Chancellor of electioneering. He did not deny it. He simply said, "You are going to lose." The Chancellor is putting an aerosol gloss on the whole economy. He is not providing jobs, stimulating the economy or improving the infrastructure. He is doing none of the important things such as encouraging investment so that we can survive in a competitive world. All that he is doing is putting a nice gloss, a feeling of bounce, in the economy, based on the purchase of more imports. It is a gambler's throw financed by asset sales. We have now reached the nadir of election politics in this country.
There has always been a tendency for Governments to manipulate the economy in the hope of gaining votes at the next election. The Labour party has not done that, of course, because when it was in government we had the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) as our one Chancellor in a position to do that—but he did not. That is why he joined the SDP. He wants to make its members as miserable as he made Labour Members in 1970.
Of course, Conservative Governments always manipulate the economy. In 1983, when voicing those platitudes about sacrifice and endeavour, they were shovelling money into domestic credit expansion as though it was going out of fashion. There was an enormous boom in domestic credit. It worked, because they were returned at the next election. That sort of action is now to be supplemented by the Government buying popularity by selling what belongs to all of us to give tax cuts to some of us. That is the ultimate in election manipulation. That is the ultimate in irresponsibility. That is the economics of bankruptcy.
The Earl of Stockton said that the Government were selling the family silver. That was a rather silly description. A true comparison would be with a household in difficulties—and the Prime Minister is fond of using the image of a household in difficulties. That is no wonder considering the way in which she runs our economy. The Government's action is rather like a household in difficulties selling its tools, its car and any productive assets. The Government are sacrificing future revenue from those assets in return for a quick gain to help them survive. They are buying the people with the people'a money. It is Government survival by hire purchase. Fortunately for the country, but unfortunately for the Government, that policy cannot work. The consequences will be ruinous.
Central to the Government's strategy is the attack on inflation. The Government intend to keep the pound at a high level. The right hon. Member for Guildford (Mr. Howell) played with the fact that the pound has moved during the past few days despite such and such factors. But it is not the exact position or the minor movement of the pound that matters; it is the Government's intention to keep it as high as possible through high interest rates to achieve their aim of defeating inflation. They want to defeat inflation by making imports cheaper, by destroying jobs in this country, and by making life so difficult for our companies through high interest rates and an overvalued exchange rate that, to survive, those companies must squeeze labour costs.
That has all the logic of mutually assured destruction as an economic policy. It will certainly destroy productive industry, be harmful to the prospects for jobs and to investment and will not improve research design and all the other things that make survival possible. The Government will turn our country into a low-wage, low-skill economy. That can be the only outcome of such a policy.
The Government must calculate when to time the election before the feeling of euphoria peters out and the harsh cold consequences of their actions begin to show, as they will by the end of next year. We are heading towards 1979 to 1981 revisited. There is no excuse for what the Government are doing. They might have had an excuse for blundering into over-valuation of the pound and high interest rates between 1979 and 1981 because they did not really know what was happening, but were merely incompetent. Now they are deliberately going into exactly that position again, but with their eyes open, and that can only be ruinous for this country and its economy.
In our economic assessments, we must never lose sight of the centrality of the exchange rate. Our problem. since the war has been that unless our productivity increases at the same pace as that of our major competitors—and it has not—and unless our inflation rate is the same as that of our major competitors—and it has not been—the pound must be depreciated to stay competitive. The Government will not do—

Mr. Brandon-Bravo: Tell us what the Labour party would do.

Mr. Mitchell: The Government have been in power for six years—

Mr. Brandon-Bravo: What is the answer?

Mr. Mitchell: I am just telling the House.

Mr. Brandon-Bravo: No; we are still waiting for the answer.

Mr. Mitchell: Perhaps the hon. Gentleman will allow me to come to the point.
If productivity does not increase at the same rate as that of our competitors, the pound must be depreciated if we are to remain competitive, or we will lose industrial capacity, lose markets, have a reduced share of world trade and become poorer and less capable of maintaining our high standard of living. Competitiveness is the problem, and loss of competitiveness has been the main reason why unemployment has increased, especially under this Government.
I believe that a competitive currency is the only way out. It is the only way for our manufacturing sector to revive and to have the stimulus to compete and to retake markets that it has lost. That is my message, my personal answer to the silly question asked by the hon. Member for Nottingham, South (Mr. Brandon-Bravo).
No one must go as far as I have in wanting a competitive currency to realise that to do the opposite of what I am recommending — to keep the pound artificially high through high interest rates—would be doubly crippling, doubly penurious and doubly ruinous for British industry. Indeed, it would be harmful to the longterm objective of the Government to improve the economy. It would defeat every attempt to expand the economy.
Every attempt to improve this country's position in jobs, investment, growth and the international trading sector is being thrown overboard by the Government in their squalid, sordid struggle to survive. Greater love of power hath no Government than that they lay down their country for their life.
The giggling, candy-loss economy towards which the Chancellor is leading us — and he treated the Select Committee with contempt — will leave us with a manufacturing base that cannot survive, cannot provide jobs, cannot help us to pay our way in the world. It will be a national disaster. It will fall to the Labour party, as it always has, to rebuild the strength of a country of which we can be proud because it satisfies the aspirations of the people—not some of the people, as the Government want, but all of the people.

Mr. Robert Harvey: The Government will shortly face one of the most crucial choices of this Parliament—whether to continue to seek a reduction in the burden of taxation, or to channel much of the money made available through the success of Government policies in keeping Government spending under control into the direct task of bringing down unemployment. I welcome the steps in the latter direction announced by my right hon. Friend the Chancellor in the autumn statement.
It is hard to dispute the economic success of this Government. We have had five years of economic growth, reaching 3 per cent. in 1983—the highest growth in the EEC—and a further 2.5 per cent. last year despite the miners' strike.
We are growing this year at the rate of 3.5 per cent., higher than any EEC country and maybe the United States as well. Meanwhile, inflation has been kept down to an average increase of 5 per cent. over the past three years compared with 15 per cent. under the previous Labour Government. All the dire predictions of the Labour party at the last election that inflation would take off and that growth would peter out have been exposed as the cant that they always were.
Britain's remarkable and sustained economic success explains why the Labour party is also so demoralised in the House. Productivity has been rising by 4 per cent. a year and manufacturing output by 3 per cent. a year. Capital investment is at an all-time high. The grim years of stagnation and high inflation during the 1960s and mid-1970s are things of the past.
The Government's success in controlling their spending while increasing it on the things that really matter, such as the National Health Service and on education per pupil, has for the first time made available spending resources to give an added push to the recovery.
The question is whether most of the new money should go into a cut in the standard rate of income tax, into raising tax thresholds, into a programme of selective public spending targeted at specific area of high unemployment, or a combination of those. Which would be the most effective?
I recognise that my right hon. Friend the Chancellor has made great strides towards reforming and simplifying the tax system in his two Budgets, and large-scale tax cuts might help towards further reforms. But tax cuts alone are

not enough. It is argued that tax cuts would help to ease unemployment. To some of us the connection seems an indirect one. It is far more likely that the extra demand injected into the economy through tax cuts would be dissipated in imports, in which case the only new jobs would be those created abroad.
It is argued that tax cuts would moderate wage claims. Again, that is unlikely. There is no evidence of greater moderation being practised by the unions in times of tax cutting. While wages are soaring, tax cuts will be barely noticed. It has been argued that tax cuts could provide incentives. I agree that tax cuts at the higher rate provide incentives because they can mean the difference between personal failure and success. But the kind of tax cuts that have been talked about in terms of the cut in the standard rate, especially if they were scattered across the board through such a cut, while providing a few extra pounds for everyone, will not make much difference to whether an industrial or office worker works more or less hard.
The argument in employment terms for raising tax thresholds is that it eases the plight of the lower paid and provides incentives for those on the margin between social security and low-paid employment. I accept that argument, but it does not apply to a cut in the standard rate.
A cut in the standard rate would be an expensive, inefficient and indirect way of coping with unemployment. Unless we get unemployment down, we shall pay the price. For years now unemployment has been stuck at about the 3 million mark. One does not have to go down the crazy reflationary path being advocated by the Labour and Alliance parties to understand that this is an appalling human loss. Of course there are scroungers and some people on the black economy, although many are there because they have to be, not because they want to be. But for the vast majority of the unwilling unemployed that means living standards of a half or a third what they ought to be, no security or prospects for the future, no hope of betterment or advancement, just quiet, patient misery and the despair of rejection. That despair hangs like a pall over the 18 per cent. of my constituents who are unemployed and the 130 workers facing redundancy today at the Muntz plastics factory in my constituency.
The causes of unemployment are blindingly obvious and have little to do with the standard reflation and deflation arguments that we hear in the House. They result from the technological revolution that is shaking out people trained in old fashioned assembly line manufacturing and requiring new skills which the old work force does not have. The new technology is replacing man with machine.
The long-term solutions are equally obvious. A proper long-term skills programme should be introduced with shorter working hours. Ultimately a shorter working week would help to ensure that all our people can enjoy the benefits of a wealthier and more leisurely society. The job release scheme, one of the best schemes introduced by the Government, should be extended and the retirement age ultimately lowered to 60 for those who want it.
Finally, in the short run, a carefully costed and targeted programme of infrastructure investment and support, in particular for construction and house building, should be drawn up to provide aid for those such as the redundant over-40s who are otherwise never likely to get a job again. Such a programme must complement a raising of tax thresholds and today there is room for both.
It would be a mistake if tax cuts and reform were put before the needs of a large and deprived group of people who have not shared in the greater wealth that the Government have engendered. It would be a pity if in the national perception the Government seemed to be handing out a further helping at the feast to the fortunate majority in work while the 3 million out of work watched hungry at the windows.
It would be a double tragedy if, after all the years of struggle to put Britain on its feet again, the public's concern with present levels of unemployment—the main concern of four fifths of the British public, so thank heavens that we are not an uncaring nation, however much better off we are becoming—should lead to the return of a Government who would destroy everything that we have achieved so far.
The Government, who have achieved so much, must now put unemployment at the top of the agenda, where 80 per cent. of the British people believe that it should be. Let us launch a national crusade against unemployment because at long last we have the resources with which to do so.

Mr. David Penhaligon: The hon. Member for Clwyd, South-West (Mr. Harvey) began his speech in a most interesting vein by saying that the Government were a remarkable success. He reeled off a number of statistics that looked encouraging. Then, like many Conservative Members who represent areas of a substantial unemployment problem, in 60 per cent. of his speech he admitted that for his constituents the Government had been a disaster. He referred to 18 per cent. unemployment and suggested a package of ideas that is largely that put forward by the alliance which earlier he condemned as crazy. He could conceivably be right, but if so he is condemning himself as well.
The most interesting aspect of the opening speeches was not so much what the Chancellor talked about but what he did not talk about, which often tells one a great deal about their train of thought. The Chancellor did not mention pay settlements throughout his speech, so determined was he to avoid that, although outside the House and during Question Time he has chosen to major on it in a fair way. I presume that his decision to do that was based on the fact that he does not know what to do about pay settlements.
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) spoke for his allocated time and, again, he did not mention pay settlements. I believe that he knows and appreciates what should be done about pay settlements, but he also knows that his party will not let him do it. Therefore, the only safe way out of that is not to talk about it.
The fear of what may happen to pay settlements if the Government's policy on exchange rates and their fiscal stance is relaxed has a lot more to do with the decisions and policies that are being developed than any other single thing. There is some justice in the Government's fear. The Chancellor reiterated today, as he did in the autumn statement and previous statements, that he was to continue the fight against inflation. That, without doubt, is the Government's greatest single success, although it is fair to say that if one compares the reduction of inflation in Britain with elsewhere the progress is useful, but it is

nothing like as impressive when compared with the fact that inflation has been reducing virtually throughout the western world.
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made a useful and telling speech about the manufacturing sector, but the simple fact is that the Government look likely to continue with their high interest rate policy. They are doing that because it will keep the exchange rate higher than it would have been otherwise. The Chancellor does not deny that. He wants to fight inflation. One clear ingredient in the short-term analysis of inflation is the exchange rate, and he said that from the Dispatch Box today. We must give him 10 out of 10 for honesty. One of the appeals of a higher exchange rate is that it will make imports cheaper. That has an effect on the cost of living index, which suggests that the problem has been solved.
As hon. Member after hon. Member, especially those representing industrial areas, have pointed out, sadly, is not the end of the story. High interest rates, high exchange rates and cheap imports occur, but the other half of the story is that the British manufacturer trying to sell abroad suddenly finds that it is much more difficult to do so as his price has been put up because of the exchange rate. Trying to maintain the home markets, which is just as important, is equally difficult. Both those trends mean the loss of jobs, and that we are a net importer of manufactured goods.
Paragraph 33 of the report of the Select Committee on treasury and Civil Service states:
export volumes have not been very responsive to price and cost changes.
I think that the Chancellor is arguing that exchange rates are not that important for exports. Over the past four or five years they have not responded as immediately as people used to believe they did. That may be so . but they do respond. Anybody who deals in goods imported into Britain will say that if a line comes on to the market that is well priced people will buy it. Exchange rates have as big an effect on that in the short term as anything else. It results in high interest rates, high exchange rates and jobs that are difficult to hold both at home and abroad.
I do not believe that the Chancellor wanted that effect. I do not believe that he set off thinking about getting rid of jobs in manufacturing. He has allowed it to happen and he stated today that it will continue because he wants to fight inflation. When he uses the word "inflation" I suspect that he means the wage demand problem that I believe has dominated this country for the past 20 or 25 years. The great unspoken problem in British politics is how to develop a sensible income strategy. We have lost much of our base through that.
In 1979 we were told that a new formula had been found and that monetarism would solve all the problems. At least the Chancellor now agrees with nearly all of the Opposition, who never did believe that monetarism would solve the problem. We are now back to exchange rates, interest rates and appeals for moderation, which seem largely to fall on deaf ears.
We believe that there must be a better solution, which is to control wage demands rather than slowly squeeze to death the remnants of our industrial sector. We could make a genuine attempt to develop an understanding on pay. We believe that we need a pay policy whether it be voluntary, fiscal or legislative. That is something that we could


discuss in depth on another occasion. It would be better to have a sensible approach to pay rather than squeeze our industrial base to death.
The Minister may have better figures, but as far as I can see from the figures made available, if one compares the pay rise of an average British worker over the past 25 years with the pay rise of an average German worker, amazingly, the British worker has beaten the German worker by 16 years to nine. Out of 25 years, the British worker has had the best rise on 16 occasions and the German worker on just nine. I do not believe that one person in the House would argue that that statistic reflects changes in living standards: we all know that the German industrial worker has done much better.
The prize of the development of a pay policy is that we can let interest rates go down, we can let the exchange rate reach a more realistic value and we can give our manufacturer a chance, at home and abroad, without roaring wage settlements. Somehow or other somebody must achieve that in Britain in the next 10 years if we are to have a substantial manufacturing sector. As hon. Member after hon. Member has said, it is difficult to envisage a living for Britain in the future which does not rely on our capacity to manufacture goods at a price that people are prepared to pay.
We seem to be moving towards a Budget with tax cuts. That will be on the back of asset sales, even if the Chancellor likes to pretend that it is not. I see that the Chancellor is in the Chamber. If, for some reason or other — we all know the difficulty of getting legislation through the House—something cropped up which meant that in the current financial year the £4.75 billion-worth of public asset sales did not occur, where would the Chancellor make the saving of that money? Would he borrow some more, cut back on capital investment in our economy or put off the tax cuts? I do not expect him to answer the question. There is not much point in asking because he does not often answer our questions. However, I suspect that less than 10 per cent. of the Members of the House would not know which of those three would be put on the back burner. It is tax cuts.
If we have some money through public asset sales to make tax cuts in the early part of next year, as was said by the hon. Member for Clwyd, South-Westst (Mr. Harvey) the alliance believes that part of it should go into public investment, into restructuring our hospitals, roads, schools, or sewers or whatever may be relevant in the particular part of the country. We argue that because we have now become so import-sensitive that any reduction in income tax will undoubtedly bring more imports, and that will have a much smaller job effect that if we put the money into public investment. I do not argue that case for all Budgets, or the Government would spend every single farthing that the national economy produced. However, I believe that in the next Budget there would be more sense, more humanity and more comprehension of the difficulties faced by many people if the money were pushed in that direction than used to make tax cuts which we know will benefit those in work who are probably already well-paid and are the better-off in our economy. They are not the ones who most need the state's assistance.

Mr. Nigel Forman: Being lucky enough to catch your eye, Mr. Deputy Speaker, at this stage of the debate, gives me the opportunity to make a truncated speech, which might be of benefit to the House and which concentrates on three positive proposals that I should like to bring to the attention of my right hon. and hon. Friends on the Front Bench.
With the background of an economy that is now progressing satisfactorily on most of the indicators— save, notably, that of massive unemployment—I should like Government policy to be directed principally to measures that would improve our competitiveness and this country's ability to do well in world markets, because I believe that that would have a useful part to play. I should like to draw three specific measures to the attention of my right hon. Friend the Chancellor.
First, there is a strong argument for more encouragement and support for industrial research and development. The House may know that between 1972 and 1983, Britain's total research and development rose slightly from £7.01 billion to £7.33 billion at 1983 prices, but at the same time the money for applied civilian research rose by only 2 per cent. in real terms and that for fundamental science and research declined by 20 per cent. That is not a satisfactory picture.
Equally, from 1967 to 1982, Britain's industry-financed research and development rose by a mere 0.9 per cent. a year, whereas over the same period the Japanese figure was 9.8 per cent. a year, for France and West Germany it was 5.9 per cent. a year and for the United States it was 4.1 per cent. a year. Therefore, basic research needs to be further encouraged by increasing public funds for higher education and the research councils. Industrial and applied research needs to be encouraged through the Department of Trade and Industry, with the continuation and expansion of the recently increased support under that heading, and by concerted efforts to educate British management in the vital necessity of that aspect of its activities. In that connection, we might consider the possibility of greater tax incentives for civilian and applied research, building on measures that already exist.
Secondly, there is a strong argument—as my hon. Friend the Member for Northampton, South (Mr. Morris) and others have said—for greater national investment in training and retraining. As is well known to the House, the performance of British companies has been lamentable in that respect. That was made clear recently in the Coopers and Lybrand study for the Manpower Services Commission. On average, British companies spend about 0.15 per cent. of their sales turnover on adult training compared with 2 per cent. to 3 per cent. in many of our foreign competitor countries. Indeed, too many British managers tend to regard such expenditure as an overhead rather than as an investment.
Those shortcomings can be remedied. It is not too late. The Government could take several measures to help. First, capital expenditure for training could qualify for tax relief in the year of expenditure. Secondly, there is a case for channelling further resources via the MSC into adult training and retraining programmes on similar lines to those operating now for the youth training scheme. Thirdly, there is a case for a statutory national individual training credit system, which has been recommended by


several people. The United States has such a system. It also figured in a pamphlet written by my hon. Friend the Member for Lewisham, West (Mr. Maples) and myself a while ago.
My third recommendation is in line with the argument of my hon. Friend the Member for Loughborough (Mr. Dorrell) and other of my hon. Friends. There is now an overwhelming case for this country to join the exchange rate mechanism of the European monetary system. Paragraph 1.55 of the autumn statement makes it clear that monetary aggregates and the exchange rate are equally important indicators for decisions on short-term interest rates. Now that my right hon. Friend the Chancellor's Mansion house speech has served to obscure the clarity of monetary policy, we have what amounts to an exchange rate policy, principally to counter inflation. In those circumstances, it would be much more reliable to pursue that policy as a member of the exchange rate mechanism. The argument put forward by Mr. Samuel Brittan and others, that it could lead to lower interest rates over a period of time, holds quite a lot of validity.
Briefly stated, the arguments that are most persuasive are as follows. The most important part of our trade is now with the other EMS countries; it should help to keep our costs and inflation rate nearer to that of our principal competitors, notably West Germany; and with the muddying of monetary policy and the attenuation of the PSBR policy, it would assist in further progress on counter-inflation, which we all wish to see. It would help us to resist the politics of unrealistic expectations, which is always a severe temptation for any democratically elected Government at this stage of a Parliament; it could lead to lower interest rates in the way that I have described. Perhaps most important, and little mentioned, it could be a contribution to international monetary reform which, looking just over the horizon, is a necessary further stage in the policies that my right hon. Friend has been following in the Group of Five and elsewhere.
I hope that my right hon. Friend has been able to take note of those three points.

Mr. Tam Dalyell: I have three related questions for Treasury Ministers.
The first is in relation to public works and their real cost. The Institute of Civil Engineers argues persuasively that for every £100 million spent on sewers, over £50 million will be recouped by tax that would not be paid otherwise, unemployment benefit that would not be paid, and adjustments to several benefits, even housing benefit. Do Treasury Ministers accept that view of social accounting? If not, why not?
Secondly, I should like to ask about an unpopular and delicate subject, about which it is too easy to be trite: the black economy. It does not behove any hon. Member to adopt a moral stance about the black economy. Those who are involved in the so-called black economy are often living in poor circumstances. Nevertheless, the time has come, to judge from the constituency work of all hon. Members, to recognise that between 45 and 50 per cent. of all the repairs carried out by the building industry are carried out by a network—a subculture, if one likes—with people often asking in pubs whether anyone knows someone who can do the work. In no way other than cash is the transaction paid for. It is time that an assessment was made of the extent of the black economy. It is not a

question of being moral but of being realistic and whether we should raise the tax threshold. To get a true picture of the economy this subject can no longer be ducked.
Thirdly, I turn to the collection of revenue. I know that Tony Christopher of the Inland Revenue Staff Federation and others have rightly persuaded Treasury Ministers to increase the staff of the Inland Revenue. However, are the Government satisfied that there are sufficient staff with the highest level of expertise to deal not only with fraud but with very complex tax collection? I am told that in the Government machine there are only 16 senior civil servants who are capable of taking on complex tax and fraud cases. As for prosecutions for fraud, out of 384 cases there have been only 37 prosecutions. Do the Treasury Ministers accept these rough figures and do they think that they are serious? If they think that they are serious, should not something be done about the matter?

Mr. Nicholas Budgen: I should like to add my voice to those right hon. and hon. Members who have asked my right hon. Friend the Chancellor of the Exchequer to give a further and better explanation of his medium-term financial strategy policy. When he was the master foreman who thought up the medium-term financial strategy, he will recollect that there were two main motives for it. The first motive was that there should be greater certainty. The second motive was a belief that politicians collectively could no longer be trusted to keep their hands off the money supply, thereby corrupting the currency.
When my right hon. Friend built that structure, the general feeling in the country was that inflation should be reduced. The need, however, for a medium-term financial strategy is now much greater. The general political wisdom is that, most of all, the Tory party wants to win the next general election and that it wants to do so by getting as many people as possible back to work as quickly as possible. That is precisely the circumstance in which the nation needs a medium-term financial strategy.
However, as I understand it—I note that many other right hon. and hon. Members who have spoken in the debate share this view—that strategy has been all but abandoned. In its place has been put a regime of high interest rates and high exchange rates. It is obvious from what my right hon. Friend the Chancellor of the Exchequer has said that high interest rates are regarded as necessary so that the liquidity preferences—to use a very technical term—of the people who hold money may continue to be fairly high, but that is bad for manufacturing industry.
It seems to me that my right hon. Friend is also aiming at a high exchange rare. Again that is bad for manufacturing industry. It is also exactly the same as the theoretical position that was adopted by the Tory party in 1973, when it imposed a prices and incomes policy. it had as its objective, not the cure of the cause of inflation, but the cure of the symptoms. There are different symptoms now, but they are symptoms nevertheless. Again I believe that this policy will be unsuccessful.
There is a second analogy to be drawn with 1973. Instead of the high and rising property prices, which fed through to the retail prices index in 1973, there is a high stock market. I hope my right hon. Friend will explain why he virtually abandoned the medium-term financial strategy on 17 October. I hope he will also explain why he prefers a high interest rate and a high exchange rate policy. Most


of all, I hope he will explain not only why it is technically desirable, but how it is technically possible, because both interest rates and exchange rates are tossed hither and thither by market forces. There may be some members of the Labour party who believe that the state can control interest rates and exchange rates, but there are not many in the Conservative party who believe that that can be done.
We supported the medium-term financial strategy because there was a collective view that politicians would corrupt the currency. I hope my right hon. Friend the Chancellor will explain that any unworthy suspicions that might be directed towards a Conservative Administration can easily be answered by him.

Mr. Terry Davis: I should like to take this opportunity on behalf of the Opposition to welcome the right hon. Member for Norfolk, South (Mr. MacGregor) to his new job as Chief Secretary to the Treasury. I think that this is the first time he has taken part in a debate since he was appointed. We genuinely welcome his appointment and hope that he will enjoy his time in office. The right hon. Gentleman brings considerable advantages to his new job. In particular, he brings the experience of two important Departments—the Ministry of Agriculture, Fisheries and Food and the Department of Trade and Industry, which stands him in good stead.
I am also sorry for the right hon. Member, and I am sorry for two reasons.
First, I am sorry for the right hon. Gentleman because he has been appointed to his new role at a time when, after six years of Conservative Government, the people will increasingly be asking to see the results of the sacrifices that they have been asked to make in terms of unemployment. [Interruption.] I see that the hon. Member for Croydon, South (Sir W. Clark) has joined us. He has been absent for most of the debate. It is unfortunate if he intends to start barracking immediately. He has not sat here throughout the debate. Many of his colleagues have been present, and I intend to deal with as many of their contributions as I can.
I am sorry for the right hon. Member also because he will have to listen to the speeches of the Chancellor of the Exchequer in future. Previously he has not had to listen to that mixture of arrogance and self-delusion that characterises the Chancellor's speeches on such occasions, including this afternoon.
Only this Chancellor and this Prime Minister could bring themselves to table a motion that
welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment
and go on to congratulate themselves on
the continuing reduction in the share of national income preempted
their word
by public expenditure.
Therefore, I begin by drawing the attention of the Chief Secretary and the House to what is really contained in the autumn statement and what is really happening in the economy.
The autumn statement begins by claiming that inflation is set to decline further. The right hon. Member for

Norfolk, South might be forgiven for thinking that he has been appointed to his new job at the end of a year in which inflation has declined, but the truth is that inflation has risen in the past year from 4.75 per cent. to 5.5 per cent.
What were we promised a year ago? The Chancellor smiles, but in his more serious moments he does not regard it as a matter for risibility that inflation has increased. That is certainly not what he promised a year ago. We were confidently told then by the Chancellor that inflation would fall from 4.75 per cent. We were promised a decrease and we got an increase—the exact opposite.
Let us look at the next promise—at growth. The Chancellor describes growth as the basis for maintaining the level of increasing employment. What has happened to growth during the past year? A year ago, we were told that GDP would grow by 3.5 per cent. At first sight, it looks as though it did. The Chancellor is nodding with satisfaction. He tells us that next year output will grow by 3 per cent. in line with the average since 1981. That looks steady enough — 3 per cent. a year, no swings, no roundabouts, no ups and no downs.
However, anyone who ploughs through another 40 paragraphs of the autumn statement will find a different picture because the Chancellor admits that the true forecast for 1986 is not 3 per cent. but 2.5 per cent. and that the average for the period since 1981 hides a growth rate decreasing from 3.5 per cent. in 1984 to 3 per cent. in 1985 to 2.5 per cent. in 1986. Independent observers of the economy forecast — we are indebted to the Select Committee on Treasury and Civil Service for bringing the forecasts together in its report—that growth will be even lower, that it will not be 2.5 per cent. but nearer 2 per cent. next year, falling even further to about 1..5 per cent. in 1987. Thanks to the Select Committee, we can see exactly the same picture in other parts of the economy.
The Chancellor says that fixed investment has increased by 4 per cent. this year and will drop to 3.5 per cent. next year, but independent forecasters say that it will be nearer 1 per cent. Then the Chancellor says that exports have risen by 7 per cent. this year and will increase by only 2 per cent. next year, and that imports have risen by only 3.5 per cent. this year but will rise by 4 per cent. next year. On the basis of those figures it is not surprising that, when the Chancellor promises that the surplus on the balance of payments on the current account will increase from £3 billion this year to £4 billion next year, those same independent forecasters expect the opposite—a fall to £2.5 billion.
The truth is that this country stands on the brink of another recession and, buried in the economic statement, the Chancellor admits it. What else can the Chancellor mean when he refers to "the current cycle", or "a cyclical slowdown"?
But there is one thing which the Chancellor and the outside experts agree on — unemployment will stay above 3 million people: more than 3 million people next year and more than 3 million the year after that.
The hon. Member for Clwyd, South-West (Mr. Harvey) said in a thoughtful speech that unemployment was due largely to the impact of technology on the economy. I agree that technology and its spread is responsible for some unemployment. It is wrong, however, to attribute increased unemployment and its continuing level simply to the introduction of new technology. The right hon. Member for Worthing (Mr. Higgins) is similarly wrong when he attributes the rise in


unemployment in the past few years to a once-for-all shake-out of people in non-jobs. It is true that there is a shake-out of people in any recession, but to attribute the rise in unemployment in the past six years to a once-for-all shake out ignores my experience and that of my hon. Friends in the cities. It ignores the facts which were put to the House earlier by my hon. Friend the Member for Birmingham, Erdington (Mr. Corbett). We suggest that the right hon. Member for Worthing should tell the people who have lost their jobs at Metro Cammell in Birmingham that they are losing their jobs because of a once-for-all shake-out of non-jobs. He should go to Castle Bromwich and tell the toolmakers of British Leyland who are just about to lose their jobs that it is a once-for-all shake out of non-jobs. He should go to the BSR workers in Stourbridge and tell them that it is a once-for-all shake out of non-jobs. Thousands have lost their jobs in the past six years, and they are still losing their jobs.
It is not surprising that Conservatives prefer to talk about rising employment and ignore the fact that by far the largest increase in employment is represented by part-time jobs for women. Contrary to what the hon. Member for Northampton, South (Mr. Morris) says, the Opposition do not decry the provision of more part-time jobs for women. We are entitled to point out however, that the Government count those with part-time jobs in the figures for rising employment. but when they lose their part-time jobs, they are not counted as unemployed. Nor are they counted as unemployed before they acquire those part-time jobs. We are also entitled to point out, that some of the women who are taking part-time jobs do so because there are no full-time jobs.
We are also entitled to point out that the increase in part-time employment for women is concealing a clear decline in employment for men in the unemployment statistics. There has been a decline in employment for men in each of the past two years. Figures in the autumn statement show that. Then we are entitled to point out that the Chancellor's boast about rising employment is based on bogus claims about the number of the self-employed, and that there are still 1 million fewer people in employment now than in 1979 when "Labour was not working." Finally, we are entitled to point out that it is clear from the Chancellor's statement that the trend of rising employment will not be maintained next year. The truth is that the increase in employment is already falling back. It is part of a developing underlying recession in the British economy.
The Chancellor plans to reduce the share of national income used for public expenditure next year from 44.5 per cent. to 43 per cent. Even taking his figures at face value, the fact remains that it was 43 per cent. in 1978–79 the last year of that much maligned Labour Government. Where then is the achievement of this Government and this Chancellor by his criteria?
The difference is not simply the amount—it lies also in what the public expenditure is spent on, but the Labour party does not accept that the percentage of national income taken by public expenditure is significant in itself. It is entirely possible for the percentage of national income in public expenditure to increase while taxpayers and consumers are better off. Some Conservative Members dispute that.

Mr. Brandon-Bravo: Yes, we do.

Mr. Davis: The hon. Gentleman obviously does not understand economics. The answer is that it all depends on the rate of growth in the economy. It is also possible for the percentage of public expenditure to decline and still spend more in public expenditure. That is the real issue— the total of public expenditure. Next year, the percentage of public expenditure will decline because the Government hope to spend less in real terms than this year. They want a reduction of ;£l billion in real terms from £127.8 billion to £126.8 billion.
The hon. Member for Kettering (Mr. Freeman) got it wrong. Public expenditure is not broadly stable. It is clear from the figures in the autumn statement that the Government which he supports are planning to reduce public expenditure, not keep it broadly stable.
However the real reduction that is planned for next year is much more than £1 billion in real terms, as is admitted in the autumn statement. When we take out reserves and asset sales, we find that public expenditure next year is planned to be £133.1 billion.
Asset sales are not public expenditure and nor are reserves unless they are used for expenditure. Reserves are available for use either for expenditure or for temporary tax cuts such as have been promised. When hon. Members deplore the lack of a fiscal adjustment in the autumn statement, I must tell them that it is there and is called "reserves".
Public expenditure will be £133.1 billion in real terms as compared with £136.7 billion this year. That represents a reduction in real terms of more than £3.5 billion. If one goes through the Government's figures Department by Department, it is clear that that is what they have screwed Departments down to in their Star Chamber round of discussions.
The Government will spend less on education.

Mr. Dorrell: Can the hon. Gentleman give one year in the past 15 when, under Labour or Conservatives, the reserve was not used to finance expenditure?

Mr. Davis: That is a very good question. If the non. Gentleman reads Treasury and Civil Service Select Committee reports, he will see that they criticise precisely that. They criticise the present Chancellor's introduction of high reserve figures to provide himself with the flexibility for tax cuts in the following year.

Mr. Dorrell: Yes, to provide flexibility.

Mr. Davis: Of course. They used it to fight the miners. Who are they planning to use it to fight next year?
They are planning to spend less on education. I am, not sure whether the hon. Member for Clwyd, South-West said that the Government will increase education spending or whether he wants them to increase education spending. Either way, I have bad news for him—they will not increase spending on education. Indeed, such spending will decrease in real terms.
The hon. Gentleman also got it wrong in regard to the job release scheme. It was not this Government but the previous Labour Government which introduced that scheme. One of the the Government's first acts was to cut the scheme when the right hon. Member for Waveney (Mr. Prior) was Secretary of State for Employment.
The Government also intend to spend less on trade and industry, less on housing and less on services provided by local councils.
The two most worrying aspects of the Government's policy are, first, what the autumn statement calls the sale of assets and the Chancellor of the Exchequer calls privatisation, and, secondly, what will happen when the oil runs out.
We do not disagree with the Chancellor about the accounting treatment of the proceeds of the sale of assets. The Select Committee is right. However, that is not the major point, nor is the doctrinal disagreement between the Chancellor and the new Conservative party, and the Opposition.
I say doctrinal, because this afternoon the Chancellor of the Exchequer made it clear that he wants to see a completely privatised economy, whereas the Opposition believe in a mixed economy which includes both public and private sectors. It is the Government who are the extremists in the House.
The real issue relates to what will happen when everything that can be sold, has been sold. This year the Government will balance their accounts by selling £2.5 billion-worth of assets, and next year by selling £4.75 billion-worth of assets, but eventually all assets will be sold. What will happen then? How will the Government plug the gap?
All hon. Members know what is happening to North sea oil. Throughout their term of office, the Government have been warned about their dependence on revenues from North sea oil to pay for unemployment, and at least the hon. Member for Northampton, South (Mr. Morris) had the honesty to admit that that is how the money is being spent. The Government are living on unearned income which will eventually come to an end. The autumn statement was most frightening because we can now see an end to North sea oil revenues. Next year will be the first year in the history of the Government when those revenues will be less than those of the previous year. That is the big issue, not, as the Chancellor would have it, the argument between the Chancellor and my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) about whether the Government have, should have or can have a depletion policy, or about the short-tern fluctuations in the price of oil. North sea oil is running out. How will the Government fill that gap in future?
We were fairly asked what a Labour Government would do if they were in office. We would do exactly what our amendment to the motion states. We would recognise the importance of manufacturing industry and we would encourage it. In particular we would help industry to train the people that it needs for a high-technology high-turnover economy, and we would help industry to finance research and development. Both those calls were echoed by some Conservative Members who have more foresight than the Chancellor. We would increase the demand for manufactured goods by an increase in public expenditure. We recognise that public expenditure is the motor, not the brake, for the economy. We would provide jobs directly by increasing public expenditure and the house building programme. Instead of selling nationalised industries, we would expect them to grow in output and employment. We would expect genuine expansion, not the expansion beloved of the City of London through acquisition and takeover, which produces nothing in real terms and merely generates paper profits. Above all, our eyes would be fixed, not on the next election, but on the next decade.
We know, as the Government know but will not admit, that there is a long term problem about paying for the present level of public expenditure without the bonus of North sea oil revenues and the stop-gap policy of selling national assets. That is why in the long term even the Government must accept within their terms of reference that they must improve public expenditure, increase taxes, or increase borrowing. That is why any tax cuts announced in the Budget will be temporary, as they know.
Against that background, the Government also know that Britain is standing on the brink of a cyclical downturn. The so-called recovery is already running out of steam. There are more than 3 million out of work and Britain is heading for another economic recession. The Government's only response is to flog off the nation's assets to pay for temporary tax cuts in a desperate attempt to keep things going for long enough to get through the next election. They are smashing up the furniture to keep the fire burning a little longer. After the election, the Prime Minister will retire to Dulwich and the rest of us will be left to pick up the pieces.

The Chief Secretary to the Treasury (Mr. John MacGregor): I am grateful to the hon. Member for Birmingham, Hodge Hill (Mr. Davis) for his kind remarks about me at the beginning of his speech. As he rightly said, it is some time since I have been involved in economic and Treasury debates. However, I took part in them for many years before 1979. I heard my right hon. Friend the Chancellor of the Exchequer speak on many occasions over many years and his were always admirable speeches.
Although it is some time since I have engaged in economic debates, I look forward to a constructive and friendly dialogue with my right hon. Friend the Member for Worthing (Mr. Higgins) about the shape, method and basic content of the public expenditure documents with which a Chief Secretary is involved. Since I spoke on Treasury matters from the Opposition Benches, there has been much progress in improving those documents. I know that my right hon. Friend had a positive relationship with my predecessor, to whom I pay a warm tribute.
I have already discovered the club of Chief Secretaries and ex-Chief Secretaries who have some shared understandings not of the scars perhaps, but of the size and scale of their detailed work load. I have always admired the skills, the forensic abilities and the cheerful patience of my right hon. and learned Friend the Member for Dover (Mr. Rees). My admiration is enhanced as I discover what he achieved during his period of office.
I am sorry that I must disagree at the outset with my right hon. Friend the Member for Worthing, and the hon. Member for Stockton, South (Mr. Wrigglesworth), who mentioned fiscal adjustment. My right hon. Friend the Chancellor dealt with that this afternoon, but, coming fresh to the issue, I am bound to say that I believe that the Chancellor's decision this autumn was absolutely right. I add only that the public expenditure figures in the document, especially for the first year, are real plans and decisions on which Departments are now basing their actions.
As my right hon. Friend the Member for Guildford (Mr. Howell) so rightly pointed out, at this stage we do not take decisions on fiscal matters or make fiscal or PSBR judgments. Therefore, that figure is not meaningful and it could be misleading, as my right hon. Friend the


Chancellor explained this afternoon. The fiscal adjustment put forward in the autumn statement during recent years has shown me that that figure is frequently inaccurate, often strikingly so. That shows that it was right to have dropped it from this year's autumn statement.
The main thrust of the Opposition's charge was the decline of manufacture. There was much beating of breasts by the hon. Member for Hodge Hill and notably by the hon. Member for Birmingham, Erdington (Mr. Corbett).

Mr. Corbett: Do not belittle it.

Mr. MacGregor: I will not belittle it and, if I have time, I shall return to the hon. Gentleman's contribution. There was much beating of breasts, but remarkably little analysis of why things happened.
As my right hon. Friend the Chancellor pointed out this afternoon, the decline in manufacturing was similar during the latter period of the Labour Government and was only sharpening during our first two years of office, when we were dealing with inherited problems at a time of world recession. I shall return to the hon. Gentleman's point, because he was short of positive alternatives.
I noted how quiet the Opposition were about the impact of galloping inflation at well above the rates of our industrial competitors during the period of the Labour Government, the impact of restrictive practices and of Government interference and burdens preventing management from managing, and the impact of overmanning, which was such a feature of the industrial debates in the House and in industry during that time. There was little concentration on it this afternoon because the Government have gone a considerable way to solving those problems.
In that context, it is instructive to consider the latest survey on unemployment conducted in November 1985 by the CBI. Employers were asked:
Here are some factors which may have had a contribution to the level of unemployment in the country today. Which one of these if any do you think had the greatest contribution to unemployment?
The answer given by 21 per cent. of those who replied was excessive pay increases relative to productivity. My right hon. Friend the Member for Guildford rightly drew attention to the dangers of increasing unit labour costs. Secondly, 18 per cent. of those who answered said that the reason was overmanning compared with our competitors. That was a striking feature of the 1970s and caused much of the hidden unemployment. Opposition Members do not like listening to this, because it tells them what employers are saying now.
The answer third from the top, given by 16 per cent. of those who answered, was poor productivity and efficiency— [Interruption.] This is a very important analysis and I am not surprised that Opposition Members do not wish to listen to it. The fourth answer, given by 11 per cent. of those who replied, was failures on the part of the management. Next, 6 per cent. — a low figure—believed that restrictive working practices were to blame. To a large extent, that problem has been solved in recent years. Five per cent. of those who replied again, a surprisingly low figure in view of the impact of high technology—believed that labour-saving investment was to blame. However, I suspect that that is because much of that investment took place in the early 1980s and that less takes place now.
Then we come to the remaining items. Four per cent. of those who replied believed that growth in the number

of people wishing to work was a factor. That is surprising because we are still at a stage where the potential labour force is increasing all the time because of demographic factors, and the numbers, especially of married women, who wish to join the labour force are increasing. Finally, 8 per cent. of those asked said that Government policies were the reason for unemployment. That is a striking illustration of what emerged strongly from the CBI conference at Harrogate. The thrust of that conference was what industry could do for itself and what the Government could do to remove the burdens on industry and to continue to create the right climate.

Mr. Terry Davis: If the right hon. Gentleman is asking the House to accept the conclusions of that survey conducted by the CBI, will he also ask the House to accept the official statement by the CBI that there is nothing in the autumn economic statement for it except an increase of £250 million in costs?

Mr. MacGregor: Let me be clear about this. First, I am asking Labour Members to accept what the CBI said in November 1985. Secondly, in the general discussion with employers throughout the country, there is an awareness that our determination to keep down public expenditure as a proportion of GDP and, above all, our striking success on inflation are in industry's interests. Perhaps the CBI did not identify that in its statement because it knows that inflation is moving downwards. However, a serious consideration of the autumn statement demonstrates clearly that it is in industry's interests. That also comes through in the survey.
Many hon. Members were worried about interest rates. I understand why industrialists and firms generally wish to have lower interest rates, but it is important to consider the context in which they talk about interest rates. I quote from the latest CBI News, in which the president of the CBI, Sir James Cleminson, says in relation to what the CBI said about interest rates at the Harrogate conference:
In real terms, they must be brought down at a rate consistent with not increasing the rate of inflation.
There is a growing understanding, which again came through in the debates in Harrogate, that it would not be in the interests of industry if, through the pursuit of our interest rate, monetary or exchange rate policies, inflation went up sharply again. That is why my right hon. Friend the Prime Minister was right last night to say that, if we were to take risks with interest rates, gratitude from industry would soon go sour if the results were a return to higher inflation, which would affect the future of every business.

Dr. Bray: rose—

Mr. MacGregor: I must continue because there is a great deal about which to speak.
My right hon. Friend's point is reflected in the statement from the CBI.
Above all, at the Harrogate conference there was recognition of the point that my right hon. Friend the Member for Guildford made in his powerful and effective speech about the dangers that will arise if our unit labour costs get out of line with those of our competitors. I thought that my right hon. Friend thoroughly dealt. with the points made by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) on oil policy and especially


on depletion. I recommend that the right hon. Member for Sparkbrook looks at my right hon. Friend's speech in Hansard.
The main theme of my right hon. Friend's speech was the danger of unit labour costs rising as a result of what he described as a spasm of management feebleness of a familiar kind. The CBI is echoing that. That would create more risks of losing jobs than anything, but is not understood by Labour Members. We must continue to put pressure on that aspect.
My right hon. Friend was also right to underline the need for flexibility in wage and salary arrangements and the methods of rewarding work done. He emphasised profit-sharing schemes, bonus schemes and, above all, share ownership and made points that were clearly not getting an echo from the Opposition Benches. The Labour party does not understand the importance of those points. How right it was to say that the philosophy of wider capital and share ownership was an idea whose time had come.
I point out to the SDP, which also believes in this policy and has been trying to make great play of it, that, while its members talk, we have been acting over many years to bring it about. My right hon. Friend and I have been members of the Wider Share Ownership Council for many years. Building on share incentive schemes or share option schemes is, above all, a key element of the policy of privatisation. It is one of the most important parts, along with the greater efficiency which this brings about in the industries pursuing that policy.
My right hon. Friend was also right to emphasise wage and employment flexibility, particularly concerning part-time work, which economic and social change is bringing about. The right hon. Member for Sparkbrook would do well to recognise that part-time employment has a very important part to play for constructive and economic reasons. He should not be so derisive of it when he talks about such jobs being created.
On the wider economic front, it was striking how little the fundamental elements in the economic forecast were challenged. The hon. Member for Stockton, South produced a number of other forecasts about growth rather than the Treasury forecast, but on the whole the Treasury forecast has been pretty accurate, which is no doubt why he put forward his doubts so meekly and tentatively. There was little reference from Opposition Members to the importance of the downward pressures on inflation in continuing to keep people in jobs, in creating new jobs and in improving our competitiveness. That was hardly referred to during the debate by the Opposition, either because they do not understand it or because they are afraid to admit that we are succeeding. The combination of steady growth and lower inflation plus all the changes on the supply side are the key to jobs—about which I am concerned as much as the hon. Member for Erdington — and dealing with the unemployment figures in the long run.
I come to interest rates and monetary policy. My right hon. Friend the Chancellor dealt with this subject at considerable length in his Mansion House speech. I do not wish to repeat the whole of that speech now, but it is an important statement of the Government's position. The key point is that the Government are committed to

maintaining sound financial conditions and to securing an appropriate growth of money GDP while steadily pressing down on inflation.
The precise mix of fiscal and monetary policies to achieve that is a matter of judgment at any one time. All the evidence is that conditions are consistent with our objectives, notwithstanding the recent behaviour of M3. The fiscal policy remains tight and the forecast shows that the 198586 P—SBR at 2.25 per cent. of GDP is the lowest for 14 years. That figure is less than 3 per cent. even if the proceeds of privatisation are excluded.
The proof of the pudding is in the eating. Inflation has been falling and it is expected to fall below 4 per cent. by the end of next year. No one has challenged that and it is a clear sign that the Government's monetary policies are succeeding.

Mr. Budgen: It is theoretically possible to have a very low rate of inflation but nevertheless putting money into the economy to create a higher rate of inflation in future.

Mr. MacGregor: No one has challenged the plain fact that the economic forecasts for next year—all outside forecasts agree—suggest that the pressures on inflation are all downward.
Comparatively little has been said today about public expenditure, but as that is my particular responsibility I should like to discuss it in terms of the autumn statement. Most importantly, the key objective on public expenditure is being fulfilled in the three-year plans. Whether or not we include proceeds from privatisation, public spending between 1985–86 and 1988–89 will fall in relation to GDP. By 1988–89 it will be the lowest proportion. since 1972–73,and that is with or without the proceeds of privatisation. That approach has the broad support of industry.
Within that overall objective, the Government have a clear idea of priorities. We have not stressed the importance of priorities sufficiently in recent discussions but these priorities are carried through in the autumn statement.
The hon. Member for Erdington talked about hospitals and roads. He ought to know that the Government have concentrated expenditure in the Health Service as a key priority since 1979. Expenditure on the Health Service is up by 20 per cent. in real terms. The Government have made the two items the hon. Gentleman singled out—hospitals and roads — special priorities for capital expenditure. Both priorities have had expenditure increases of 30 per cent. in real terms since 1979. The Government have also employed 50,000 extra nurses.

Mr. Corbett: There is not enough nursing staff, although the Government have cut nurses' working hours.

Mr. MacGregor: The hon. Gentleman is opposed to the cuts in hours. The fact is that he does not have an answer to the fact that the Government have concentrated their expenditure on priorities. That rightly reflects a recognition of real economic and social needs.
In the autumn statement the Government have deliberately taken a decision to concentrate resources more on local authority housing renovation because we believe that that is where needs lie. It was rich for Opposition Members to argue that that will take years to carry out, as the Government are having to clear up a backlog of 40 years of inefficient control. The Government are doing that, and we shall carry it out over 13 years.
It is right that the level of local authority starts has come down in recent years because much more housing provision is taking place in the private sector, which is where the hulk of the population wants it to be.

Mr. Terry Davis: Give us the totals.

Mr. MacGregor: I would like to make a further important point about priorities. My right hon. Friend the Chancellor of the Exchequer said that there has been a switch from one particular priority, that of defence spending. Defence spending has been increased substantially under this Government, and much has been achieved by that. A great part of the programme for improving equipment has been completed. It is right now to establish priorities in other areas and to look no longer for real growth in the defence budget. An area where we can still achieve substantially greater output with a defence budget that is not increasing in real terms is by concentrating on better defence procurement policies and greater value for money. That applies, too, to the Health Service. It is notable that that is never discussed by Labour Members. By concentrating on greater efficiency and obtaining greater value for money, we can release many more resources for real needs within the same overall figure.

Dr. Oonagh McDonald: That policy has led to the closure of maternity, accident and emergency units in my constituency.

Mr. MacGregor: The hon. Lady will not face the fact that there has been a considerable increase in real terms on spending on the Health Service.
It has been explained repeatedly that the privatisation policy is being pursued because it is right in itself. It is better for the industries concerned and better for the customer. It produces wider share ownership and results in industries having to come to the capital markets to prove their priority before they can obtain finance from the markets. The policy is being pursued for these reasons.
It is true that proceeds come from the sale of assets, but surely it is clear that we are putting plainly in front of the public all the details of the proceeds from privatisation so that everyone can judge the way in which the policy is being pursued. The figures appear in the autumn statement because it is conventional for them to do so. The convention was followed by the previous Labour Government, and I understand that it is an international convention. The figures are in the autumn statement for all to see and no one is pretending that they are being hidden. It is possible for anyone to make a judgment, especially when my right hon. Friend the Chancellor of the Exchequer produces his Budget, on the balance between privatisation and the borrowing requirement, for example.
I do not know what the Opposition would do about privatisation. They must come clean because the public want to know their wider policy and because their view of privatisation will form an important part of their future economic policy if, most unfortunately and many decades ahead, they return to power.
It is not clear what is behind the attack of the right hon. Member for Sparkbrook on privatisation. Does he think that he must find a way of denigrating privatisation because it is such a popular policy, or is he saying that he would not pursue the policy, that he wants higher public expenditure and that his public sector borrowing

requirement would be greater than the one which we are pursuing? He is muddled .in his attitude to privatisation, and that is plain for all to see.
I have listened carefully to the debate and many of my hon. Friends have made constructive suggestions. I was not able to hear every speech in the debate, but notes have been given to me setting out what has been suggested. When I entered the Chamber a short while ago I heard part of the interesting speech of my hon. Friend the Member for Carshalton and Wallington (Mr. Forman). It was clear from my hon. Friends' speeches that there was strong support for the overall programme. There is strong support for the economic policy as a whole, as reflected in the economic forecast, and for the public expenditure programmes themselves. It is difficult to know what to make of the Opposition.

Mr. Penhaligon: Perhaps I can help the Minister. I shall be pleased to do so as he used to do much good work for the fishing industry when he was the Minister of State, Ministry of Agriculture., Fisheries and Food. the Chancellor of the Exchequer has said, in effect, "If the price of oil declines, so be it. If the price increases, so be it. We shall not interfere with the cartel." That is understandable. Do the Government think that the economy will be stronger or weaker if the price of oil falls below $20 a barrel?

Mr. MacGregor: I thought that the Chancellor made it clear that there were advantages as well as difficulties implicit in that situation. This is an issue that we shall have to consider at the appropriate time. The hon. Gentleman referred to my previous work in connection with fish. He must know that he was putting forward a red herring.
It is difficult to know what to make of the Opposition. It was interesting to note that the right hon. Member for Sparkbrook refused to answer the two questions that my right hon. Friend put to him this afternoon. I put them to him again. What broad level of public sector borrowing requirement does he think is appropriate in the current economic situation? [HON. MEMBERS: "Answer."] He has absolutely refused to set any level. Secondly, when will he say what the Labour party would do about the renationalisation of companies that have been privatised? [Interruption.] No wonder the right hon. Gentleman is turning with some embarrassment to speak to his hon. Friend the Member for Thurrock (Dr. McDonald). Above all, will the right hon. Gentleman say what level of public expenditure he would think appropriate?
No wonder the right hon. Gentleman will not answer any of those questions. He knows that his present policy would mean higher taxation, higher borrowing, renationalisation and, above all, higher inflation. If the right hon. Gentleman is too coy to give the country a straight answer, let me remind him of Labour's plans at the last general election. [Interruption.] No wonder Opposition Members do not want to listen.
The sum total of electoral bribes offered by Labour at that time amounted to a staggering £40 billion of additional public expenditure. Since then there have been only indications, but they are all hugely upwards. Higher spending has been promised on rural and urban areas. I believe that Labour would renationalise companies transferred by us to free enterprise. They would set up new public corporations in pans of the economy where there were none before, student grants would be substantially


increased, sixth formers would be given pocket money on the rates and aid would be doubled. Labour would abolish private medicine and private education, putting the entire burden on the taxpayer. They would spend more on the roads, railways and ports.
My right hon. Friend referred to a recent article in Tribune on an interview with the right hon. and learned Member for Monklands, East (Mr. Smith), who, I notice, has not been in his place. In that article he talked of an enormous expansion, by at least 50 per cent., in the Department of Trade and Industry budget. He talked about releasing financial constraints on local government for economic development. We know the type of local authorities to which it would go and—[Interruption.]—and the wasteful expenditure that that would mean.
In his recent policy document, the hon. Member for Kingston upon Hull, East (Mr. Prescott) listed a whole series of areas of further public expenditure. Indeed, it looks as though the Labour party is adopting the gut reaction, "Whatever you do, we will double it." No wonder the right hon. Member for Sparkbrook did not answer the questions put to him this afternoon. He must be terrified of what his right hon. and hon. Friends are cooking up.
I shall give only one quotation tonight:
The Labour party is always wanting to bake plum pies before we have picked the plums.
They were not my words but those of the right hon. Member for Sparkbrook.

Mr. Hattersley: rose—

Mr. MacGregor: I do not have time to give way to the right hon. Gentleman.

Hon. Members: Give way.

Mr. Speaker: Order.

Mr. MacGregor: Those words of the right hon. Gentleman are quoted in Lord Barnett's book. The right hon. Gentleman was asked this afternoon what he would do about monetary policy and he answered by using one word —[Interruption.]— "prudent." That is an astonishing word to use given that list of spending. The right hon. Gentleman had one message this afternoon—he was frightened of the next election. There will not be an election for some time, but our policies will ensure that we shall win it.

Question put,That the amendment be made:—

The House divided: Ayes 183, Noes 254.

Division No.28]
[10 pm


AYES


Adams, Allen (Paisley N)
Bermingham, Gerald


Alton, David
Bidwell, Sydney


Anderson, Donald
Blair, Anthony


Archer, Rt Hon Peter
Boothroyd, Miss Betty


Ashdown, Paddy
Boyes, Roland


Ashley, Rt Hon Jack
Bray, Dr Jeremy


Ashton, Joe
Brown, Gordon (D'f'mline E)


Atkinson, N. (Tottenham)
Brown, Hugh D. (Provan)


Banks, Tony (Newham NW)
Brown, N. (N'c'tle-u-Tyne E)


Barnett, Guy
Brown, R. (N'c'tle-u-Tyne N)


Barron, Kevin
Buchan, Norman


Beckett, Mrs Margaret
Caborn, Richard


Beith, A. J.
Callaghan, Jim (Heyw'd &amp; M)


Bell, Stuart
Campbell, Ian


Benn, Rt Hon Tony
Campbell-Savours, Dale


Bennett, A. (Dent'n &amp; Red'sh)
Canavan, Dennis





Carter-Jones, Lewis
Lofthouse, Geoffrey


Cartwright, John
McDonald, Dr Oonagh


Clark, Dr David (S Shields)
McKay, Allen (Penistone)


Clarke, Thomas
McKelvey, William


Clelland, David Gordon
MacKenzie, Rt Hon Gregor


Clwyd, Mrs Ann
McNamara, Kevin


Cocks, Rt Hon M. (Bristol S.)
McTaggart, Robert


Cohen, Harry
Madden, Max


Coleman, Donald
Marek, Dr John


Conlan, Bernard
Marshall, David (Shettleston)


Cook, Robin F. (Livingston)
Martin, Michael


Corbett, Robin
Maynard, Miss Joan


Corbyn, Jeremy
Meacher, Michael


Cox, Thomas (Tooting)
Meadowcroft, Michael


Crowther, Stan
Michie, William


Cunliffe, Lawrence
Mikardo, Ian


Cunningham, Dr John
Millan, Rt Hon Bruce


Dalyell, Tarn
Mitchell, Austin (G't Grimsby)


Davies, Rt Hon Denzil (L'lli)
Morris, Rt Hon A. (W'shawe)


Davis, Terry (B'ham, H'ge H'I)
Morris, Rt Hon J. (Aberavon)


Deakins, Eric
Nellist, David


Dewar, Donald
Oakes, Rt Hon Gordon


Dixon, Donald
O'Brien, William


Dobson, Frank
O'Neill, Martin


Dormand, Jack
Owen, Rt Hon Dr David


Douglas, Dick
Park, George


Dubs, Alfred
Parry, Robert


Duffy, A. E. P.
Pavitt, Laurie


Dunwoody, Hon Mrs G.
Penhaligon, David


Eadie, Alex
Pike, Peter


Eastham, Ken
Powell, Raymond (Ogmore)


Edwards, Bob (W'h'mpt'n SE)
Prescott, John


Evans, John (St. Helens N)
Radice, Giles


Field, Frank (Birkenhead)
Randall, Stuart


Fields, T. (L'pool Broad Gn)
Redmond, M.


Fisher, Mark
Rees, Rt Hon M. (Leeds S)


Flannery, Martin
Richardson, Ms Jo


Foot, Rt Hon Michael
Roberts, Ernest (Hackney N)


Forrester, John
Robertson, George


Foster, Derek
Robinson, G. (Coventry NW)


Foulkes, George
Rogers, Allan


Fraser, J. (Norwood)
Rooker, J. W.


Freeson, Rt Hon Reginald
Ross, Stephen (Isle of Wight)


Garrett, W. E.
Rowlands, Ted


George, Bruce
Sedgemore, Brian


Godman, Dr Norman
Sheerman, Barry


Golding, John
Sheldon, Rt Hon R.


Gould, Bryan
Shore, Rt Hon Peter


Hamilton, James (M'well N)
Short, Ms Clare (Ladywood)


Hancock, Mr. Michael
Short, Mrs H.(W'hampt'n NE)


Hardy, Peter
Skinner, Dennis


Harman, Ms Harriet
Smith, C.(lsl'ton S &amp; F'bury)


Harrison, Rt Hon Walter
Smith, Rt Hon J. (M'kl'ds E)


Hart, Rt Hon Dame Judith
Snape, Peter


Hattersley, Rt Hon Roy
Soley, Clive


Haynes, Frank
Spearing, Nigel


Heffer, Eric S.
Steel, Rt Hon David


Hogg, N. (C'nauld &amp; Kilsyth)
Stott, Roger


Holland, Stuart (Vauxhall)
Strang, Gavin


Home Robertson, John
Thompson, J. (Wansbeck)


Howells, Geraint
Thorne, Stan (Preston)


Hoyle, Douglas
Tinn, James


Hughes, Dr. Mark (Durham)
Wallace, James


Hughes, Robert (Aberdeen N)
Wardell, Gareth (Gower)


Hughes, Sean (Knowsley S)
Wareing, Robert


Janner, Hon Greville
Welsh, Michael


Jones, Barry (Alyn &amp; Deeside)
White, James


Kennedy, Charles
Williams, Rt Hon A.


Kilroy-Silk, Robert
Wilson, Gordon


Kinnock, Rt Hon Neil
Winnick, David


Kirkwood, Archy
Woodall, Alec


Lambie, David
Wrigglesworth, Ian


Lamond, James
Young, David (Bolton SE)


Leighton, Ronald



Lewis, Ron (Carlisle)
Tellers for the Ayes:


Lewis, Terence (Worsley)
Mr. John McWilliam and


Litherland, Robert
Mr. Ron Davies.


Lloyd, Tony (Stretford)







NOES


Adley, Robert
Eyre, Sir Reginald


Aitken, Jonathan
Fairbairn, Nicholas


Alexander, Richard
Fallon, Michael


Alison, Rt Hon Michael
Farr, Sir John


Amess, David
Fletcher, Alexander


Ancram, Michael
Fookes, Miss Janet


Arnold, Tom
Forman, Nigel


Aspinwall, Jack
Forsyth, Michael (Stirling)


Atkins, Rt Hon Sir H.
Fowler, Rt Hon Norman


Atkins, Robert (South Ribble)
Fox, Marcus


Atkinson, David (B'm'th E)
Fraser, Peter (Angus East)


Baker, Rt Hon K. (Mole Vall'y)
Freeman, Roger


Baker, Nicholas (Dorset N)
Galley, Roy


Baldry, Tony
Garel-Jones, Tristan


Batiste, Spencer
Glyn, Dr Alan


Bellingham, Henry
Goodhart, Sir Philip


Benyon, William
Gow, Ian


Best, Keith
Grant, Sir Anthony


Bevan, David Gilroy
Greenway, Harry


Biffen, Rt Hon John
Gregory, Conal


Biggs-Davison, Sir John
Grist, Ian


Blackburn, John
Grylls, Michael


Blaker, Rt Hon Sir Peter
Hamilton, Hon A. (Epsom)


Body, Richard
Hannam, John


Bonsor, Sir Nicholas
Harris, David


Boscawen, Hon Robert
Harvey, Robert


Bottomley, Peter
Heddle, John


Bottomley, Mrs Virginia
Henderson, Barry


Bowden, Gerald (Dulwich)
Hickmet, Richard


Boyson, Dr Rhodes
Higgins, Rt Hon Terence L.


Braine, Rt Hon Sir Bernard
Hirst, Michael


Brandon-Bravo, Martin
Holland, Sir Philip (Gedling)


Brinton, Tim
Hordern, Sir Peter


Brittan, Rt Hon Leon
Howell, Rt Hon D. (G'ldford)


Brooke, Hon Peter
Hunter, Andrew


Brown, M. (Brigg &amp; Cl'thpes)
Jackson, Robert


Bruinvels, Peter
Jessel, Toby


Bryan, Sir Paul
Johnson Smith, Sir Geoffrey


Budgen, Nick
Jopling, Rt Hon Michael


Burt, Alistair
Kershaw, Sir Anthony


Butterfill, John
King, Roger (B'ham N'field)


Carlisle, John (Luton N)
King, Rt Hon Tom


Carlisle, Kenneth (Lincoln)
Knight, Greg (Derby N)


Carlisle, Rt Hon M. (W'ton S)
Lamont, Norman


Carttiss, Michael
Lawler, Geoffrey


Cash, William
Lawrence, Ivan


Chalker, Mrs Lynda
Lawson, Rt Hon Nigel


Chapman, Sydney
Leigh, Edward (Gainsbor'gh)


Chope, Christopher
Lennox-Boyd, Hon Mark


Churchill, W. S.
Lewis, Sir Kenneth (Stamf'd)


Clark, Dr Michael (Rochford)
Lightbown, David


Clark, Sir W. (Croydon S)
Lilley, Peter


Clarke, Rt Hon K. (Rushcliffe)
Lloyd, Ian (Havant)


Colvin, Michael
Lloyd, Peter, (Fareham)


Coombs, Simon
Lord, Michael


Cope, John
Lyell, Nicholas


Cormack, Patrick
McCurley, Mrs Anna


Crouch, David
Macfarlane, Neil


Currie, Mrs Edwina
MacGregor, Rt Hon John


Dickens, Geoffrey
MacKay, Andrew (Berkshire)


Dicks, Terry
MacKay, John (Argyll &amp; Bute)


Dorrell, Stephen
McNair-Wilson, M. (N'bury)


Douglas-Hamilton, Lord J.
McNair-Wilson, P. (New F'st)


du Cann, Rt Hon Sir Edward
McQuarrie, Albert


Dunn, Robert
Madel, David


Durant, Tony
Major, John


Edwards, Rt Hon N. (P'broke)
Malins, Humfrey


Eggar, Tim
Malone, Gerald


Emery, Sir Peter
Maples, John


Evennett, David
Marland, Paul





Marlow, Antony
Shepherd, Colin (Hereford)


Marshall, Michael (Arundel)
Shepherd, Richard (Aldridge)


Mather, Carol
Shersby, Michael


Maude, Hon Francis
Skeet, T. H. H.


Mawhinney, Dr Brian
Smith, Tim (Beaconsfield)


Maxwell-Hyslop, Robin
Soames, Hon Nicholas


Mayhew, Sir Patrick
Speed, Keith


Merchant, Piers
Spencer, Derek


Meyer, Sir Anthony
Spicer, Jim (Dorset W)


Miller, Hal (B'grove)
Squire, Robin


Mills, Iain (Meriden)
Stanbrook, Ivor


Mitchell, David (Hants NW)
Stanley, John


Moate, Roger
Steen, Anthony


Monro, Sir Hector
Stern, Michael


Montgomery, Sir Fergus
Stevens, Lewis (Nuneaton)


Moore, John
Stevens, Martin (Fulham)


Morris, M. (N'hampton, S)
Stewart, Andrew (Sherwood)


Morrison, Hon C. (Devizes)
Stewart, Ian (Hertf'dshire N)


Morrison, Hon P. (Chester)
Stradling Thomas, Sir John


Moynihan, Hon C.
Tapsell, Sir Peter


Mudd, David
Taylor, John (Solihull)


Murphy, Christopher
Taylor, Teddy (S'end E)


Neubert, Michael
Tebbit, Rt Hon Norman


Newton, Tony
Temple-Morris, Peter


Nicholls, Patrick
Terlezki, Stefan


Norris, Steven
Thatcher, Rt Hon Mrs M.


Onslow, Cranley
Thomas, Rt Hon Peter


Oppenheim, Phillip
Thompson, Patrick (N'ich N)


Oppenheim, Rt Hon Mrs S.
Thorne, Neil (Ilford S)


Ottaway, Richard
Thornton, Malcolm


Page, Richard (Herts SW)
Thurnham, Peter


Parris, Matthew
Townsend, Cyril D. (B'heath)


Patten, J. (Oxf W &amp; Abdgn)
Trippier, David


Pattie, Geoffrey
Trotter, Neville


Pawsey, James
Twinn, Dr Ian


Percival, Rt Hon Sir Ian
van Straubenzee, Sir W.


Pollock, Alexander
Vaughan, Sir Gerard


Portillo, Michael
Viggers, Peter


Powell, William (Corby)
Wakeham, Rt Hon John


Powley, John
Waldegrave, Hon William


Prentice, Rt Hon Reg
Walker, Bill (T'side N)


Price, Sir David
Walker, Rt Hon P. (W'cester)


Proctor, K. Harvey
Waller, Gary


Pym, Rt Hon Francis
Ward, John


Raffan, Keith
Wardle, C. (Bexhill)


Rees, Rt Hon Peter (Dover)
Warren, Kenneth


Rhodes James, Robert
Watts, John


Rhys Williams, Sir Brandon
Wells, Bowen (Hertford)


Ridley, Rt Hon Nicholas
Whitney, Raymond


Ridsdale, Sir Julian
Wiggin, Jerry


Rifkind, Malcolm
Winterton, Mrs Ann


Robinson, Mark (N'port W)
Wolfson, Mark


Rossi, Sir Hugh
Wood, Timothy


Rost, Peter
Yeo, Tim


Rumbold, Mrs Angela
Young, Sir George (Acton)


Sackville, Hon Thomas



St. John-Stevas, Rt Hon N.
Tellers for the Noes:


Shaw, Sir Michael (Scarb')
Mr. Ian Lang and


Shelton, William (Streatham)
Mr. Timothy Sainsbury.

Question accordingly negatived.

Main Question put and agreed to.

Resolved,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 12th November; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.

Social Security

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major): I beg to move,
That the draft Social Security (Contributions, Re-rating) Order 1985, which was laid before this House on 12th November, be approved.
It may be helpful to the House if I outline the purpose and main features of the order and the regulations associated with it. I should say at the outset that I do not intend to engage in speculation about what may or may not be in the Government's forthcoming White Paper on social security. It will be published shortly and the House will have ample opportunity on that occasion to debate what is in the White Paper.
This brief debate illustrates an important theme in social security—that benefits have to be paid for. We have to ensure that the money coming into the national insurance fund is sufficient to pay for expected benefits, and that there is an adequate balance to provide for unexpected contingencies. For that reason, we have this annual exercise in prudent accounting, which requires the Government to bring before parliament their proposals for national insurance contribution rates and related matters for the forthcoming tax year. The report of the Government Actuary on the effect of the proposed changes was laid before the House by my right hon. Friend the Secretary of State on 12 November, as required by the Act.
I shall begin by considering the effect of our proposals on employers and employees. In that respect, I hope that the House will acknowledge the Government's achievement in bringing before it proposals which will mean that for the third successive year there is to be no change in the rate of class 1 national insurance contributions. That is achieved against a background of an increase in main benefit rates which will add £2 billion to social security spending in a full year, bringing it to £41 billion. This steadying of contribution rates is beneficial to both employees and employers and reflects the Government's determination to keep the tax and contributions burden as low as possible.
Although the rate of class 1 contributions remains constant, there is, as usual, a change to the lower earnings limit for employees' and employers' contributions, as well as a change to the upper earnings limit for employees' contributions. The House will recall that the upper earnings limit for employers' contributions was abolished with effect from 6 October this year to help offset the loss of revenue resulting from the new reduced contribution rates for the lower paid and their employers.
In carrying out these changes, we are simply fulfilling the requirements laid down in the Social Security Pensions Act 1975, which requires the lower earnings limit to be equal to or no more than 49p below the basic rate of retirement pension and the upper earnings limit to be between 6.5 and 7.5 times that rate. A pension rate of £38.30 next year—representing a real increase in the value of retirement pension during the period in which the Government have been in office—points inevitably to a lower earnings limit of £38 a week.
The statutory requirements affecting the upper earnings limit for employees permit a little more discretion. It

would have been possible to extend it to £287.25, but the figure we have chosen of £285 represents a 7.5 per cent. increase on the current limit, which is broadly the same as the general increase in the level of earnings. This maintains its relationship with the basic pension rate and is within the range of 6.5 to 7.5 times that limit—again as laid down in the Social Security Pensions Act 1975.
As my hon. Friend the Minister of State acknowledged in last year's debate, there were grounds for criticising the way the earnings limits worked. Since that time we have taken the opportunity, in the Social Security Act 1985, to introduce a graduated system of contribution rates which substantially modifies the effect of the lower earnings limit. The new graduated rates, based on three bands of earnings for employees and four for employers, soften the previous sudden onset of full rate contribution once the lower earnings limit has been reached. The purpose of the new system is to foster the creation of jobs by reducing the cost of employing some 8.5 million workers and for the lowest paid in particular reducing employers' contributions by more than half, from 10.45 to 5 per cent.
We propose to build upon that by increasing, under the terms of the order, the range of weekly earnings on which reduced rates of contributions will be payable. The lowest band of earnings on which contributions at 5 per cent. will be payable will run from £38—the new lower earnings limit—to £59.99 per week. The 7 per cent. band will run from £60 to £94.99 per week and the 9 per cent. band will start at £95 with an upper limit of £139.99. That is an increase of £10 over the previous limit.
The changes mean that an employer employing someone at £139 a week will have his employment costs reduced by over £2 a week. The weekly take-home pay of someone earning £94 a week will be increased by £1.88, and his employer's costs will be reduced by a similar amount. Only employees earning between £265 and £285 per week have any significant change to their contributions and here the maximum additional contribution will be £1.80 a week.
I should now like to tell hon. Members of our proposals for self-employed people. As the House is aware, self-employed people pay their contributions in two parts—the flat-rate class 2 contribution and the profits-related class 4 contribution. As we do not propose to increase the class 1 rate for employees, it follows that no increase is needed in the class 4 rate that is derived from it. The profits limit for class 4 contributions rises automatically each year broadly in line with the earnings limit for class 1 contributions. The figures proposed this year are £4,450 and £14,820, the latter figure being exactly 52 times the upper earnings limit. Contributions on profit are paid at the rate of 6.3 per cent. and have been since April 1983.
With regard to the self-employed class 2 rate as a deliberate and positive incentive to small businesses, we propose continuing the large abatement given to self-employed people earlier in the year. Consequently, we propose only a modest increase of 25p a week in the contribution, making it £3.75 a week from next April.
The effect of these changes is that for the majority of self-employed people there will be an overall reduction in their contributions of £38.40 a year in 1986–87 compared with 1985–86. Only those earning above the upper profits limit of £14,820 will pay more, and then only a maximum of £27.12 a year. The small earnings exception from class 2 liability also rises automatically—in this case by £150 to £2,075. Finally, the proposed voluntary class 3


contribution rate is, as usual, being set at 10p below the class 2 rate, giving a figure of £3.65 a week from next April.
The House will have noticed that we are not this year proposing any change in the Treasury supplement to the national insurance fund. It will remain at 9 per cent.
I deal finally with the effect on the national insurance fund of the changes that we have proposed. The Government Actuary in his report estimates that the order that we are debating will cause expenditure from the national insurance fund to exceed income by £80 million next year. That will have only a very marginal effect on the working balance in the fund, which will stand at the end of next year at an estimated £4,755 million. That balance represents 20 per cent. of the estimated benefit expenditure during the year, still well above the prudent minimum balance of 16.7 per cent. recommended by the Government Actuary.
My right hon. Friend the Secretary of State has considered these estimates and is satisfied that the changes that we have proposed are entirely compatible with maintaining a proper working balance on the fund, consistent with advice from the Government Actuary, while at the same time reducing, wherever possible, the burden on employers, employees and the self-employed alike.
In 1986–87 we shall be paying out just under £24 billion from the national insurance fund—nearly £18 billion of it in retirement pensions. The purpose of the annual re-rating of contributions is to ensure that there are sufficient funds to pay for those benefits.
We believe that the changes contained in the order provide that guarantee and, moreover, at the expense only of the minimum extra burden on contributors. What they aim to do— and what we believe they achieve—is to strike a balance between the protection of the national insurance fund, with the huge benefit calls upon it, and the protection of those who contribute to that fund. On that basis, I commend the order to the House.

Mrs. Margaret Beckett: As the Parliamentary Under-Secretary of State for Health and Social Security has pointed out, tonight's debate gives effect to the changes in the system of national insurance contributions that was introduced earlier this year in the Social Security Act 1985. We all recognised the regressive nature of the national insurance contributions system and the way in which it has been exacerbated by the policy that has been steadily pursued by the Government. That policy has increased the reliance upon contributions to fund social security benefits. At the same time, however, it has decreased the supplement paid by the Treasury from general taxation. It is thus collected with more regard for ability to pay. This year the Government have not, for once, chosen to reduce the Treasury supplement. We are pleased about that. However, we believe that it is set at too low a level, and we are not therefore as gratified as the Under-Secretary of State might expect.
It is extraordinary that a Government who have so steadily pursued a policy of increasing reliance upon contributions—contributions towards what was intended to be and is still called a "national insurance" system—should equally steadily have reduced the benefits for which those contributions were levied. The steady continuance of earnings-related contributions has gone

hand in hand with the steady disappearance of earnings-related unemployment benefit, sickness benefit and maternity allowances. Most recently there has been the disappearance of the earnings-related invalidity pension. I hope I am not tempting providence by saying that, but that has been offset against the invalidity allowance, with a consequent reduction in the income of the disabled. My postbag is swollen with letters from the disabled who complain that they are not receiving the full effective increase that was allowed by the uprating last autumn. I hope that the Under-Secretary of State's postbag is swollen with similar letters.
We recognise that the system needed to be improved. The Government argue that the changes that they introduced earlier and that they are modernising by this order will provide additional help for the lower paid. However, the Under-Secretary of State will be aware that, although the proposals replaced one very sharp poverty trap, it was replaced, unfortunately, by several other poverty traps, although their immediate effect was somewhat diminished.
I do not know whether the Under-Secretary is aware that it has been calculated recently that the new set of poverty traps will catch three times as many people on low pay as were caught under the previous system. Those who are caught in the new poverty trap, or traps, will be subject to marginal tax rates that are as high as 70 per cent. precisely because, as earnings move across each band, people are subject to each rate on their whole earnings.
The biggest trap, as happened under the old system, occurs when somebody crosses the first threshold of earnings. Unfortunately, this will affect in particular part-time employees, the great majority of whom are women. If will affect young people too. In other words. it will affect precisely those groups of people who are already losing out in other ways. They are losing out already on unemployment protection rights and on benefit entitlement. They will now lose out not only because of the poverty trap but because employers will be encouraged to keep wage levels low, or to cut hours below the level at which employees become liable to national insurance contributions.

Mr. Tim Smith: I listened carefully to what the hon. Member for Derby, South (Mrs. Beckett) said about the three poverty traps, but surely the position was far worse previously when there was just one rate —9 per cent. At a rate of 5 per cent. the poverty trap will be alleviated. The present arrangements improve the position. If the hon. Lady is so concerned about it, what is her solution to the problem?

Mrs. Beckett: I recognise that the present poverty trap is not so serious now, and I pointed out that fact. However, although the poverty trap is less severe, I think that the hon. Gentleman will recognise that if it catches three times as many people, those who will now be caught in the poverty trap but who were not caught by it before will not be so grateful as the hon. Gentleman appears to expect them to be. It is our duty to point out to the Government that more people will be affected by these changes, even though they will not be affected quite so seriously as were those who were previously caught by the poverty trap. We are concerned about the effect on part-time workers, especially women. The changes in employment figures, to


which the Government so often refer, are largely accounted for by women. Unfortunately, those who can obtain employment will be caught by these changes.
Sometimes it seems that, so long as people do not appear in the unemployment figures, the Government are less worried about whether they have what the Prime Minister likes to call a "real job" and even less worried about whether they can live on and support a family on their earnings. The Minister of State said on Report that 'the proposed changes would increase the net income of the low-paid. There is a danger that, instead of increasing their net income over a comparatively short period, the proposals will merely change the composition of that income as gross wages are pushed down at the expense of three times as many people caught in the poverty trap.
This would be a matter for concern at any time, but it is especially so when the prices of so many of the basics of healthy and civilised living are pushed up by other Government policies. There has been an increase of about 12 per cent. in water rates, and increases in prescription charges and gas and electricity prices to meet the Government's financial targets. The Government still assert that people should be prepared to bear more of the burden of the costs that were previously borne through their contributions to the welfare state.
During the debate on the Social Security Bill much play was made of the help that the proposals would give to the young . unemployed. We drew attention to the fact that, although it may be argued—we would question this to some extent—that the proposals helped those people, the help was paltry compared with the penalty imposed on families which include the young unemployed and are forced to receive housing benefit because of their financial circumstances. At the time we made that complaint, the deduction from housing benefit for a young person in employment was at, as seemed to us and to the Government's Social Security Advisory Committee, the excessive level of £9 a week. Since then, the Government have increased that deduction by more than the rate of inflation to well over £10 a week.
In contrast to the increased penalty that the Government have imposed on the young unemployed, the self-employed continue to benefit from the Government's generosity. During the passage of the Bill, we pointed out that even self-employed people who might be reasonably well off and be earning substantial sums would have to pay only £3.50 under the proposals, to retain their entitlement to the basic pension. That was extremely good value for money—such good value for money that there seemed to be little question but that the state was subsidising that improvement. The Under-Secretary of State said that the sum had increased to only £3.75. As the non-dependant deduction from housing benefit was already thought to be excessive at £8.80, I believe that, if the Government were going to be generous to any group of people, they should have been generous to that group rather than to the people whom they chose.
Every year that we have had this debate since I have held this position we have touched on the nominal balance that is maintained in the national insurance fund. The Government Actuary recommended that a prudent level of balance would be 16.6 per cent. The proposal is for 21 per cent. for the current year and 20 per cent. for next year —substantially more than the Government Actuary said

was needed for "prudence". These are sums which, even if they are only kept in notional balance, are not dispersed in benefit although they are received in contributions.
I also remember asking the Government and receiving no answer, whether they intended to keep substantially larger balances in the fund. It was proposed that the level of balances should be 27 per cent. rather than the 21 per cent. that finally emerged. I asked whether that was due to excessive prudence or the fact that the Government realised that unemployment would rise by much more than the Government Actuary was allowed to suggest.
As the outturn was 21 per cent. rather than 27 per cent. it seems that, although the Government were not prepared to admit it, they were concerned with the level of unemployment. We can only conclude as, for next year, they still propose to keep 4 per cent. more than is considered prudent, that, irrespective of whether they will admit it, they are confident that their economic policies will prove as big a failure next year as they did last year, the year before that and the year before that.
Although I do not doubt that these proposals will go through, they do so against a background of, at best stalemate and probably a deterioration in the Government's position.

Mrs. Edwina Currie: I welcome the proposals. It is a great pity that the hon. Member for Derby, South (Mrs. Beckett), my neighbour in Derbyshire, has wasted this opportunity by making what has become a party political speech. She ought to be aware from her experience in social security that one never eradicates the poverty trap but just moves it around. There can be a shallow poverty trap that does not affect people very much, but it affects a lot of people, or a deep poverty trap that affects a small number of people considerably. As soon as we offer benefits in addition to what people can earn, there is a poverty trap. I do not believe that the Labour Government made a better job of getting rid of it than we have done. It is not logically possible to get rid of it.
The hon. Lady and her colleagues should recognise that, as my hon. Friend the Minister said, it is a considerable achievement to introduce these changes which help the low-paid and improve matters only six months after the scheme was introduced. My hon. Friend mentioned all of the changes. For most of us there will not be any change. The main class of contribution rates will stay at 9 per cent. for employees and 10.45 per cent. for the company. That deserves some kind of recognition. No change often receives no acknowledgement, but it deserves recognition.
We now have more pensioners in the United Kingdom. We pushed up the total cost of the social security budget last month by more than £2 billion—more than the rate of inflation. I am not sure where the hon. Member for Derby, South thinks the money is going, but it is going to some of my constituents and they are very pleased to have it. It all has to be paid for, but we did not need to increase national insurance contributions for the vast majority. Indeed, we have cut the rate for those who can most benefit—people in low-paid jobs. The day will come when the Opposition recognise some of these things and say, "Well done" but that time has not arrived tonight.
One or two of the things that the hon. Member for Derby, South said are worth pursuing in a non-party


political way. It is not all sweetness and light. In the debate on the Budget in the previous Session, I said, as had many others who spoke before me, that national insurance contributions are a tax. I welcomed the Government's recognition at long last of that fact. It does not matter that it is called a contribution and that it confers a right. Most people know their gross income and their net income; and the rest are just "stoppages". They do not care very much what title those stoppages have. The same is true for the employer as it is a cost of employing people. It does not matter whether it confers rights and benefits to people in whose names contributions are paid.
We make nonsense of any policy to help the low-paid to stay in work if we push up employers' costs through national insurance while trying to cut income tax. The hon. Member for Birkenhead (Mr. Field) is nodding—

Mr. Frank Field: Am I?

Mrs. Currie: He will be aware that, under the Labour Government of 1976–79—

Mr. Field: Like one of those dogs in the back of a car.

Mrs. Currie: —the national insurance charge on employers rose from 8·75 per cent. to 13·5 per cent. It was to Labour's shame that they did that and to ours that we left it that high for far too long. A result of that is that it became more expensive for employers to employ people. If we charge employers about 13 per cent. , a figure which included the national insurance surcharge, we should not be in the least surprised when they switch to using equipment and machinery instead of people. That seems axiomatic. At last we are getting to grips with the problem, and I urge my hon. Friends to see this as the first step and to take the matter further.
I asked the Library to give me figures for the loss from an individual's income of national insurance and income tax. It gave me figures for average male earnings for a single person not contracted out. In April 1976 a single man on average earnings would have paid 28·1 per cent. of his earnings in income tax, 5·75 per cent. in employee's national insurance, and his employer would have forked out 8·75 per cent., which totals 42·6 per cent. I chose April 1976, because that was when the Labour Government went beserk in pushing up income tax rates. That is the highest proportion of income tax paid in recent years.
The latest figures for October 1985 made me swallow hard, because while we had managed to cut the take from tax from 28·1 per cent. to 23·7 per cent., which is a substantial improvement, unfortunately the take in employee's national insurance had increased from 5·75 per cent. to 9 per cent., and the take from employer's national insurance, which is significant for helping people stay in work by encouraging their employers to keep them, had increased from 8·75 per cent. to 10·45 per cent. That figure has improved as it was more than 13 per cent., but the total is 43.15 per cent. of earnings, in other words, it is more than it was in 1976.
For low-paid workers, someone on, say, half average earnings, the position is almost exactly the same. In April 1976 a man would have paid 21·2 per cent. in tax, and 5·75 per cent. in national insurance, and his employer would have paid 8·75 per cent., which totals 35·7 per cent. In October 1985 he paid 17·5 per cent. in tax, which is a substantial reduction and we must congratulate our right hon. and learned Friend on that, his insurance increased

to 9 per cent. and his employer's insurance would have been about 9 per cent., which totals 35.5 per cent. In other words, we have managed to knock 0.2 per cent. off the total take in all those years.
Two significant points are to be drawn from that. First, it took the Library two da:ys and seven different sources to dig out what in my ignorant and humble view is the most basic information for studying the take from a man's pay. It should not have to be sought in seven sources. Secondly, it is obvious that we have yet to congratulate ourselves entirely on ensuring that we have reduced the take from a man's pay and from his company in employing him.
The Government Actuary's report states that today's order will cost £70 million, and the autumn statement made it clear that—because more people are working, there is more overtime, less short-time working and average earnings are rising faster than inflation— the total income to the national insurance fund will rise by more than the £70 million that it will lose— by £1.5 billion. Therefore, I urge all my hon. Friends that when debating whether the Chancellor of the Exchequer should cut taxes in the spring by changing the rates or the threshold, we should perhaps consider the national insurance figures instead. We should not be satisfied until the figure that we take from a man on average earnings drops to below 40 per cent., as it was 15 years ago. That implies a national insurance contribution of about 6 per cent. The figure for a man on half earnings should fall below one third. That seems perfectly reasonable. That implies a national insurance contribution of about 3.5 per cent.
My right hon. Friend the Chancellor described those changes in the autumn statement as,
welcome assistance to the low-paid and their employers, and a stimulus to the employment of the young and unskilled."—[Official Report, 12 November 1985; Vol. 86, c. 433.]
That must be right, and this small change is a welcome step. It is too soon to tell whether the changes that were introduced on 6 October are having any effect, but it was pleasing to see from the latest unemployment figures that more than 20,000 young school leavers came off the register last month. That is a net reduction over the same period last year, so perhaps the policy is having some effect. Such small changes, together with our policies on wages councils for the young, youth training and the Manpower Services Commission's efforts, lead me to hope that we can look forward to better employment prospects for all our people.

Mr. Frank Field: It was unfair of the hon. Member for Derbyshire, South (Mrs. Currie) to say that my hon. Friend the member for Derby, South (Mrs. Beckett) had made a party political speech. Any reasonable person listening to my hon. Friend would have thought that she was her usual thoughtful, probing self, carefully considering the Government's proposals.
When the hon. Member for Derbyshire, South got into her stride, we realised why it was important for her to throw dust in our eyes, because if there was a party political speech, it came from her. However, it was a surprise speech, in that it seemed to be an indictment of the Government's tax policy. A Government who successfully fought two general elections on reducing the rate of tax must find the hon. Lady's remarks disturbing.
One hopes that the valuable information that she gleaned from the Library will not be completely lost by the Labour party as it prepares for the general election.
It would be difficult for anyone — certainly an Opposition Member—to disagree with the change in structure that has been introduced, although I shall return later in my speech to the remarks of the hon. Member for Derbyshire, South on the impossibility of getting rid of the poverty trap. Although it is right to appluad the Government for the change in structure, it is equally right to focus some attention on the other changes that they have made in the burden of national insurance contributions during the past six years.
There have been two significant changes, both of which were commented on fairly by my hon. Friend the Member for Derby, South. The first is that there has been a major switch in lessening—if one can call it that—the burden of the Exchequer on those in employment. That is not to accuse the Government of sleight of hand, because they said that they would do so, but it is interesting to compare our present position, with a small contribution from the Exchequer, with what was envisaged in the 1948 White Paper on the national insurance scheme. Following Beveridge's proposals, it was assumed that because it was a poll tax and, therefore, highly regressive, it should play only a small part in financing the cost of national insurance benefits.
By 1965, it was forecast that the Exchequer contribution would be about 70 per cent., and that employees and employers would make a small proportional contribution to financing the scheme, but the reverse has happened. The Exchequer contribution has almost faded away, and been given considerable stimulus to fade away under the Government, and the burden on employers and employees has increased substantially. Although one criticises the tax system for not being as progressive as it should be, it is more progressive than the national insurance scheme. That has been the first shift in the burden of taxation.
The hon. Member for Derbyshire, South was right to highlight the two consequences of that—on takehome pay for people considering the benefits of working or not working, and on the costs that employers must meet if they are to continue to employ their existing work forces, let alone take on new people.
Partly to meet the problems of putting that extra burden on the shoulders of those in work, the Government have made a second shift in the distributional impact of the tax by increasing the burden on those in work, who are earning wages and salaries, and reducing the contribution paid by employers. That is the second redistribution of the cost of financing the welfare state.
All this has taken place, as my hon. Friend the Member for Derby, South said, at a time when people are being asked to pay more, while getting less from the national insurance scheme. We do not quibble about the reforms that were introduced last year, which were welcomed. Nevertheless, there have been changes that have had a detrimental effect both on employment and on people's job opportunities.

Mr. Tim Smith: I do not quite understand what the hon. Gentleman is saying. He keeps on saying that a larger burden is now placed on those in work, but is he

suggesting that a larger burden should be placed on those who are out of work, or on pensioners? Surely most taxation is paid by people who are in work, and in one form or another they will end up paying for it. I cannot see how, if Beveridge had anticipated 70 per cent. as the amount of Treasury supplement, it would be a contributary scheme at all.

Mr. Field: Unfortunately, Beveridge is not here, so we cannot have a conversation with him and ask whether he thought that the scheme would be contributary, and, as I am not skilled in conducting seances, we shall have to leave the question of what he would have thought.
My last point links in with another point that the hon. Member for Derbyshire, South made. One might criticise the Government over the poverty trap, but no Government can eradicate it. All that they can do is to move it around, as this Government have done. They have made it slightly better, in that the effect is less horrendous, but more people are caught in it. However, the changes in taxation that have occurred since 1979 show that for high income earners—less than 3 per cent. of the population—the cuts in taxation have been truly staggering. Had such cuts not been granted, we would have had the resources to eradicate the poverty trap as we know it today by changing the national insurance scheme, by raising thresholds, and by substantially increasing child benefit.

Mr. Tim Smith: Untrue.

Mr. Field: The hon. Member may not like that, but that is the choice. I shall give way if he wishes to dispute whether it is true about the tax cuts for what were called surtax payers. Do we now face the next election saying that even that pledge was not fulfilled by the Government?

Mr. Smith: That is not the point. We are not suggesting that the Government did not fulfil their pledge. However, the amount of revenue to be gained by raising the top rates of tax to their former level would not be sufficient to fund what the hon. Gentleman is describing.

Mr. Field: I am grateful for that intervention, because the parliamentary answers that we have had on this subject show that that small group of less than 3 per cent. have gained £8 billion since 1979. If the hon. Gentleman is saying that that would not make any difference to the proposals that we are discussing, he is living more in the world of Beveridge than the world in which I am living.
I do not disagree with the change in structure that the Government have made to the scheme. It is an improvement, but they have chosen to make other tax changes for those who are well off, rather than making major changes in reforming the financing of the welfare state and of the tax system for the majority of taxpayers. As a result, we still have the problem of the poverty trap. At the same time, we have been shifting the cost of the welfare state and, as the hon. Member for Derbyshire, South said, all of us are paying more for less.

Mr. Tim Smith: I welcome the fact that the order reinforces the radical proposals which my right hon. Friend the Chancellor of the Exchequer introduced in his Budget statement when he reduced contribution rates for the lower paid to 5 per cent. and 7 per cent. respectively. We cannot estimate the effects of the changes as they were introduced as recently as 6 October, but I am


confident that they will have a substantial and beneficial effect on employment. The changes were welcomed by the majority. The regulations reinforce the changes.
I am concerned that thresholds are linked to pensions, which at present are linked to price increases. The result is that we are not increasing thresholds in line with earnings increases and they are falling as a proportion of earnings each year. It is nonsensical that someone earning only £38 a week should have to make any contribution to the national insurance fund, even if it is only 5 per cent. I know that if those contributions were not forthcoming there would be consequences for benefits, but it is crazy that someone earning so little should have to make any national insurance contributions.
I do not understand why there should be any Treasury contribution to the fund. If it is a genuine contributory pension scheme, those who participate should make contributions in exchange for which they are entitled to a pension after a certain period. There is no justification for the supplement. It has been reduced to 9 per cent., and in due course it should be eliminated.

Mr. Archy Kirkwood: I cannot agree with the remarks of the hon. Member for Beaconsfield (Mr. Smith) about the Treasury supplement. It is a matter of concern that the percentage has been reduced. In 1975–76— admittedly, before the Government took office—it stood at 18 per cent. and it is now only 9 per cent. That is a steep rate of decline.
I am optimistic about the order. I think that the appearance of the new Minister, the Under-Secretary of State, on the Government Front Bench has made a significant impact on the Government's policies and I look forward to the consequences of that in future. As the hon. Member for Derbyshire, South (Mrs. Currie) said, we should recognise that there has been some damage limitation. I recognise also that the national insurance rate has been held steady for three years, which is to be welcomed. The relatively small increases in the rates for the self-employed are to be welcomed.
In the context of the past six years, the small reductions that are proposed are only right and proper. I hope that they are a hint of things to come and that there will be further damage limitations and other improvements. If my understanding is right, the Government have a duty under section 120 of the Social Security Act 1975 to review the general level of earnings in Great Britain before they start to consider the content of the order.
I shall quote from an article that appeared in The Guardian of 30 October. It was concluded
that the bottom 10 per cent. of all income earners had a rise in gross weekly earnings of 6.6 per cent. over the year to April compared with a rise in retail prices of 6.9 per cent. By contrast the top 10 per cent. took rises of nearly 71/4 per cent. while the average rise was just under 7.2 per cent.
The article continued:
The gross earnings of the bottom 10 per cent. of men have risen by 69.8 per cent. since 1979, well short of the 74.6 per cent. rise in retail prices. Meanwhile, the top 10 per cent. have had rises worth 101.2 per cent. and the average (median) is 84 per cent.
That shows that there have been significant changes in the earnings of the better off and of the worse off. The gap between the better off and the worse off is increasing, and that is not adequately reflected in these provisions.
My hon. Friend the Member for Colne Valley (Mr. Wainwright) welcomed the lower rates of national

insurance contributions at the time of the Budget as a move towards an integrated tax and credit system. The problem is that, as the system is working, instead of having one large discontinuity in contributions, the spread is bringing more people into the earnings trap. Reference has been made to the large number of people, between 70 and 80 per cent., on the marginal rates. We must watch carefully how the system works. I agree that these are early days, the scheme having come into operation in October.

Mr. Timothy Wood: Is it not a fact that the increase in numbers to which the hon. Gentleman referred reflects the large increase in the number of people who are paying lower rates of national insurance contribution and, thus, are beneficiaries of the alterations that have been made by the Government? That should be welcomed, particularly in the context of what has been said about the lower paid not having wage increases as large as some of the higher paid.

Mr. Kirkwood: I welcome that so far as it goes, but two consequences flow from that development. Although the take-home pay of some people on very low rates of pay is increased, it makes it difficult for them to secure a real improvement in pay because of the earnings trap, especially as it gives employers the opportunity to hold down pay. They can tell employees, "There is no point in my paying you an extra two or three quid because it will all go in lost benefits, school meals and so on."
The Low Pay Unit, the Institute for Fiscal Studies and researchers at the London School of Economics have clone some interesting work on this subject, and I will give an example of what can happen under the three phased reduced lower rates. A grade C part-time cleaner working 16 hours a week for £2·13 an hour earns £34·08 a week and is exempt from paying national insurance. If she receives an increase of 9p an hour, to £2·22 an hour, taking her pay to £35.52, she becomes subject to national insurance payments of £1·78 a week, meaning that her real take-home pay after the increase is £33·74, which is less than she earned before the increase. This instrument will increase the number of people who will find themselves in that situation, and we must keep a close eye on that.
I agree that the increases in the class 2 and 4 contributions could have been a great deal worse. The actuarial assumptions of increases in earnings of about 7
or 8 per cent. which have been written into the order fall a long way short of what will happen in respect of self-employed people, especially in the retail and hotel sectors. The experience of the past 12 months shows that they will have no increase in earnings. They will be lucky if they can hold their own in cash terms in the next 12 months, never mind have an increase in earnings.
Many self-employed people will find that the new stage rates will impose an increased burden on them. They will have to calculate the three new low rates. When there was only one rate employers had only to do one set of sums. They now have to do three. That must be taken into account. The self-employed have had a bad deal.
The rate revaluation in Scotland has had a severe impact on the earnings of small businesses in the past year and will continue to do so in the coming year. As has been mentioned, rates are a hidden impost on the self-employed that they must face in addition to the increases in gas, electricity, telephone and, in England, water prices. They


have combined to prejudice the self-employed. They make the actuarial assumption of a 7 or 8 per cent. increase in their earnings optimistic, to say the least.
In general, the self-employed feel that the impost of class 2 and 4 contributions is unfair. They consider them to be a tax on employment that bears heavily on small businesses. They believe that they should have parity with employers who pay class 1 contributions and should be spared class 4 contributions and pay class 2 contributions. They cannot recoup their class 4 contributions because if they increase their prices to increase their incomes they increase the profits on which the class 4 contributions are based.
The self-employed have been dealt a rather unfortunate series of blows. The increased impost appears small on the face of it but, if we consider the way in which the Government have been acting in this matter over the past six years, the increases are stiff. We shall be looking for further reductions in self-employed and class 1 contributions in the future if we are to redress the balance that has become so sadly out of kilter over the past six years.

Mr. Major: I began my introductory remarks by saying that I did not propose to anticipate the social security White Paper. That was prudent. I begin my closing remarks by saying that I do not propose to step between the hon. Member for Derby, South (Mrs. Beckett) and my hon. Friend the Member for Derbyshire, South (Mrs. Currie). I am prepared from time to time to be reckless, but I am not prepared to be wholly foolhardy. I hope that the two hon. Ladies will appreciate that.
The hon. Member for Derby, South said a great many things. From time to time she even touched upon the order that we are debating. In one of those moments she mentioned that the national insurance fund balance of 20 per cent. of annual benefit still seemed high in relation to the 16.6 per cent. balance suggested as a minimum by the Government Actuary. I do not want to quibble with the hon. Lady, who was a distinguished luminary of the Labour Government, but in that Government's closing years the percentage balance was 39, 40.8 and 38.3 respectively. If I follow through the logic of what she subsequently said, I can only assume that they left that level of balance because they were anticipating the subsequent legacy of unemployment.
The hon. Lady also said—and what she said was echoed to a degree by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood)—that three times as many people may be caught in the poverty trap post changes in graduated contributions as were caught previously. As my hon. Friends the Members for Beaconsfield (Mr. Smith) and for Derbyshire, South said, it is not specifically the numbers of people who may be affected that matters, but how badly they are affected. The hon. Member for Birkenhead (Mr. Field) touched on that point quite clearly and honestly.
There are great difficulties with the poverty trap, and we all acknowledge that. No Government have yet found a way to eliminate those difficulties. We hope that we will ameliorate them with the proposals that we will set out in the White Paper that I am not disposed to discuss this evening. Nevertheless, it is clear that the changes that

were made in October have softened the effects of those difficulties— and done so quite dramatically. That is wholly to the good.
The hon. Lady spoke about why it might be a good idea to spend the balance in the fund — perhaps on higher pensions or some other attractive area of spending. The answer is quite clear. It is a matter of simple prudence. The balance in the fund is necessary for working purposes. It is needed as a reserve against unexpected increases in benefit expenditure or falls in contribution income. We would be very unwise to operate on a very narrow margin.
My hon. Friend the Member for Derbyshire, South spoke of the attractions of a reduction in the national insurance rate to 6 per cent. I must tell her that a 1 per cent. reduction would result in a £1,300 million drop in resources in the first year, and a reduction of the size that she suggested would cost the fund about £4 billion, which would be a very substantial reduction indeed.
There was considerable discussion by my hon. Friends the Members for Beaconsfield and for Derbyshire, South and the hon. Members for Birkenhead and for Roxburgh and Berwickshire about the anticipated effects on employment of the changes in graduated contributions. It is fair to say that as the changes became operative only from 6 October, it is too early to make any realistic assessment of what may be achieved. The predictions that we have seen — from the private sector, not the Government sector — suggest the creation of between 150,000 and 400,000 extra jobs by 1987.
The purpose of those changes — should they be successful—was clear. It was to create a climate in which employers would take on extra staff. We hope that they will seize that opportunity, not only for the economy at large but for those at present out of work who would come into work if they were able successfully to do so.
The hon. Member for Roxburgh and Berwickshire said that employers might find it difficult to work with three different rates of contribution. I hate to disagree with him, but he is wholly wrong. All employers are issued with national insurance tables and they merely need to read across them to see the liabilities. I cannot believe that the changes in graduated rates will cause any significant difficulties.
There was a modicum of discussion about the size of the Treasury supplement, which remains steady this year at 9 per cent. I cannot offer the hon. Member for Roxburgh and Berwickshire any commitments for the future, but was pleased to hear that he was content that the level of contribution would remain steady this year.
However begrudgingly, the Opposition should give the Government some credit for one or two of the matters in the regulations and in the October changes that preceded them—

Mr. Frank Field: We are spreading it around with a trowel.

Mr. Major: If the hon. Gentleman thinks that, I would hate to be here when he was not doing that —[Interruption.] Perhaps I will be here—it is a pleasure to which I look forward during the next few weeks.
We could have had a little more credit for the fact that the class 1 contribution rates did not rise for the third successive year. That is a substantial achievement, bearing in mind the background against which it was achieved. I hate to contradict the hon. Gentleman, but it compares


favourably with the previous Labour Administration, who increased employers' contributions by five percentage points. We did not hear much about that from the Opposition. We might also have heard a little more about the fact that we are proposing to extend the advantages of the new lower contribution rates a good deal higher up the earnings scale. I think that that is generally welcomed. I hope that it will also be welcomed outside the House. We still intend to ensure that those paying contributions at the lower rates will have their benefit rights protected.
I think that that is a good record and one which we can commend to the House with some pride and pleasure. I commend the order to the House.

Question put and agreed to.

Resolved,
That the draft Social Security (Contributions, Re-rating) Order 1985, which was laid before this House on 12th November, be approved.

EUROPEAN COMMUNITY DOCUMENTS

Motion made, and Question put forthwith pursuant to Standing Order No 80(5) (Standing Committees on European Community documents)

PROTECTION OF WORKERS: PROSCRIPTION OF HARMFUL AGENTS

That this House takes note of European Community Documents Nos. 9193/84 and 7832/85, draft Directive and amended draft Directive on the protection of workers by the proscription of specified agents and/or work activities; recognises that the intent of the draft Directive accords with established United Kingdom practice on the protection of workers; and endorses the Government's intention to agree to the Directive in principle.—[Mr. Maude.]
Question agreed to.

STATUTORY INSTRUMENTS, &c.

Motion made, and Question put forthwith pursuant to Standing Order No 79(5) (Standing Committee on Statutory Instruments, &c.

RESTRICTIVE TRADE PRACTICES

That the draft Restrictive Trade Practices (Services) (Amendment) Order 1985, which was laid before this House on 22nd November, be approved.

ROADS AND BRIDGES (SCOTLAND)

That the draft Security for Private Road Works (Scotland) Regulations 1985, which were laid before this House on 26th November, be approved.

AGRICULTURE

That the draft Hill Livestock (Compensatory Allowances) (Amendment) Regulations 1985, which were laid before this House on 2nd December, be approved.

BETTING, GAMING AND LOTTERIES

That the draft Betting, Gaming and Lotteries Act 1963 (Schedule 4) (Amendment) Order 1985, which was laid before this House on 19th November, be approved.—[Mr. Maude.]
Question agreed to.

ESTIMATES

Resolved,

That this House agrees with the Report (10th December) of the Liaison Committee.—[Mr. Maude.]

St. Nicholas Hospital, Plumstead

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Maude.]

Mr. John Cartwright: I am grateful for the opportunity to raise the issue of the intended closure of St. Nicholas hospital. I am also grateful for the visible support of the hon. Member for Erith and Crayford (Mr. Evennett). I hope that he will have the opportunity of catching your eye, Mr. Deputy Speaker, in the course of the debate. If he does, he may speak not only for himself but for his hon. Friend the Member for Bexleyheath (Mr. Townsend). I appreciate and value the support that the hon. Members have given in the campaign on behalf of St. Nicholas hospital. Their support has demonstrated that this is an all-party campaign, and underlines the fact that the hospital serves not only my constituency but neighbouring areas.
This is the third occasion on which I have raised the question of the future of St. Nicholas hospital on the Adjournment. That illustrates the long-standing campaign waged against it by Health Service officials and the sheer determination of local people to keep it open.
It is worth putting the current problems into perspective. The first formal attack on St. Nicholas came as long ago as 1971 from the former south east regional hospital board. Its plan died with the board's demise in 1974, but the vendetta against St. Nicholas continued. The new Greenwich and Bexley area health authority issued a formal consultation document in November 1976 proposing the removal of all acute services from St. Nicholas. Despite massive public opposition, the closure of all beds at the hospital was confirmed by the authority in July 1977. The problem then landed on the desk of the Secretary of State the present Lord Ennals. To his credit, he received several deputations, consulted widely and visited Plumstead to see for himself, not just the hospital but the area it serves. As a result he declared in December 1977:
I do not believe it can be right to close the hospital and I am unwilling to do so.
He justified that decision by producing what is arguably the most quoted statement about the hospital in its long and distinguished history. He said:
St. Nicholas is a valued hospital, well situated to service a community whose population is growing. It is in Plumstead where social conditions are poor and there are many old people living in bad housing. It is also central for Thamesmead, a locality of industrial development.
In May 1978 after further detailed discussions and some deliberation, the Secretary of State announced his final decision. He endorsed the plan put forward by the South East Thames regional health authority. It was intended to turn St. Nicholas from a district general hospital into a community hospital. The blueprint for the transformation was clear and detailed. In its new role, the hospital was to provide, in the words of the then Secretary of State,
out-patient and minor casuality facilities; theatre and supporting services for minor surgery with about 20 beds; 20 to 25 general practitioner medical beds; and the present 41 geriatric beds with perhaps the addition of some further geriatric beds. Consideration should also be given to the establishment of a psycho-geriatric day centre.
I admit that I was disappointed and somewhat cynical about that outcome. To me, trusting St. Nicholas to the


tender mercies of those Health Service mandarins who had always wanted to close it was about as sensible as trusting Little Red Riding Hood to the wolf.
Lord Ennals did his best to reassure me. In a personal letter dated 10 July 1978, he wrote:
I really do not think it right to contend that the change of use of St. Nicholas hospital means its eventual closure. I told the health authorities that I am not willing to agree to closure and I know that they will make every effort to develop practicable arrangements which will enable the hospital to continue. I cannot believe that the inevitable transitional problems cannot be solved and I am sure that St. Nicholas can become a viable community hospital which will complement the District General Hospitals in the Area and give valuable service to the people of Plumstead and Thamesmead.
Unfortunately, my pessimistic forecast turned out to be more accurate than Lord Ennals' optimistic predictions. It was only four years after his decision that the health authority once again recommended total closure of the hospital. In the meantime, it had never allowed the hospital even to try to carry out the tasks that the Secretary of State had mapped out for it. It starved it of resources, refused to let it provide the range of services included in the 1978 decision, and, far from developing the hospital, pursued a policy of systematically removing one after another of the vital elements of the 1978 package.
First came the closure of a minor surgery department. Then the number of general practitioner beds was cut. A continued rundown of out-patient facilities culminated in the transfer of two ear, nose and throat clinics to the Brook hospital. Then came the abrupt closure of the "walking wounded" accident department. In none of those cases was there any public consultation. The closures were regarded as temporary, and not therefore subject to the formal procedures. In act, they were widely seen for what they were—a deliberate campaign by the Greenwich health authority to run down St. Nicholas by back-door cuts and thus to achieve the total closure that it had been denied in 1978.
In 1982 people in the authority finally took their courage in both hands and once again started the formal procedure to shut down the hospital. Then they became embroiled in a complex argument with the Bexley health authority over the division of the financial spoils expected to result from closure. That arose because between 60 and 66 Bexley patients are being cared for in geriatric beds in Greenwich hospitals. Bexley wants to provide for them in its own area, but it cannot do so until it gets its hands on a substantial slice of cash from Greenwich. The Bexley plan was to provide extra geriatric beds at Queen Mary's hospital in Sidcup and to create 26 new beds at Erith and district hospital, originally by 1988–89. However, we now hear that the Erith scheme is being put back, apparently as far into the future as 1993–94. Bexley is therefore left with a maximum of 34 geriatric beds at Queen Mary's in Sidcup in which to accommodate some 60 to 66 patients now in Greenwich.
Most people would regard that as too much of a tight squeeze, but Bexley health authority officials apparently believe that it is possible because what they charmingly call their throughput is considerably higher than that of Greenwich. That seems a somewhat insensitive approach to the care of the elderly and a rather doubtful proposition. It also totally ignores the fact that many of those elderly folk come from Erith, Belvedere and Welling in the

northern part of the borough, an area which is far better served by the nearby St. Nicholas hospital than by one in faraway Sidcup. In fact, I understand that some elderly people discharged from Queen Mary's hospital in Sidcup find their way into private nursing homes, and as a result are even further away from their homes and relatives than in Sidcup.
The Bexley patients are vital to the future of St. Nicholas hospital. If beds cannot be found for the old folk who are now cared for in the Brook and Memorial hospitals in Greenwich, the space that is needed will not be released to accommodate the Greenwich patients who now occupy St. Nicholas hospital beds.
The negotiations between the two district health authorities have been a long and drawn out affair. As long ago as 17 December 1984 the hon. Member for Oxford, West and Abingdon (Mr. Patten), in his role as a Department of Health and Social Security Minister, wrote to me and said:
I am concerned that there should not be any further delay in making the decision on the future of St. Nicholas. It is important that Greenwich and Bexley health authorities agree between themselves at an early date on the amount of revenue to be transferred for geriatric services currently provided to Bexley residents from St. Nicholas. I will ensure that South East Thames Regional Health Authority is ready to arbitrate between the two authorities if agreement is not reached soon.
I understand that the negotiations are still not complete. The Minister gave that assurance over a year ago. Nobody can accuse the authorities concerned of intemperate haste.
May I offer what I hope will be a sensible and helpful suggestion to the Minister. Given that the Erith provision will not be available until 1993–94, is it not possible to provide funds to enable the Bexley health authority to take over beds in St. Nicholas? There is plenty of accommodation in St. Nicholas. Could not some of the beds there be allocated to Bexley to provide for those old folk who will otherwise have to be accommodated at Queen Mary's hospital?
I very much welcome the action that the Minister has taken so far. He has not rubber stamped the closure decision; he has asked serious questions about the future of patient care if St. Nicholas is closed. It is not just geriatric patients who will be affected. In its comments upon the closure proposal, the Greenwich and Bexley family practitioner committee questioned the sense of spending considerable capital sums upon providing extra outpatient and paramedical facilities in other hospitals if St. Nicholas was closed, particularly if this would involve patients in long and difficult journeys. The family practitioner committee supported at the very least the retention of full outpatient and diagnostic services at St. Nicholas.
It is also worth recalling that 54 local general practitioners who had used the general practitioner beds at St. Nicholas oppose both the closure and the resulting transfer of those beds to Greenwich district hospital. Their comment was revealing. They said that there was a crying need for beds for the elderly, whose primary need was care rather than high technology medicine or surgery. St. Nicholas could play that complementary, supportive role, with great benefit to the two district general hospitals. Many of the routine, minor accident cases could be dealt with at St. Nicholas instead of lengthening the queues at the Brook or the Greenwich district hospitals. The pressure on beds at the two big general hospitals could be eased if none acute cases and care were available at St. Nicholas.
My constituents are incensed by the fact that St. Nicholas is not being allowed to fill this role. They want to know what on earth the point is of lengthy and detailed public consultation if a health authority can then ignore its results as blatantly as the Greenwich health authority has done in this case. St. Nicholas is ideally sited to serve not just my constituents in Plumstead, Abbey Wood and Thamesmead but many more people in the neighbouring areas of Belvedere, Welling and Erith. It is ridiculous that these potential patients and their families should be forced to undertake costly and difficult journeys to Sidcup, just because of the bureaucracy of health service boundaries.
We are not asking for the hospital to be retained in its present form. We understand that the nature of the site makes it extremely expensive to run, but it should be possible to use some of the buildings and some of the land to provide the basic essentials that are needed by a viable and effective community hospital. That would release a substantial area of land to help with the funding of the necessary capital expenditure.
None of the factors that led Lord Ennals to rule against the closure in 1978 has been removed. The population is still growing, particularly in Thamesmead. There are still large numbers of elderly people. There are still substantial areas of old housing. And growing unemployment has done absolutely nothing to improve the social deprivation in the area. If anything, the case for St. Nicholas is stronger today than it was in 1978.
I applaud the Minister for the action that he has taken so far. I urge him to follow the example of his distinguished predecessor and come and see for himself. He will find that the case for St. Nicholas rests not on loyalty to a much loved local institution, powerful though that is, but on the sheer hard fact of the need for health care in the area that St. Nicholas has served for so long and that it should be able to serve in the future.

Mr. David Evennett: rose—

Mr. Deputy Speaker (Mr. Harold Walker): Order. Is the hon. Gentleman's intervention agreeable to the Minister?

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. Ray Whitney): Yes, Sir.

Mr. Evennett: I am pleased to be able to speak in the debate and to associate myself with the comments of the hon. Member for Woolwich (Mr. Cartwright) about St. Nicholas hospital.
As I see it, there are two main points. The first is the background to health care provision in my constituency, in that of the hon. Member for Woolwich and in that of my hon. Friend the Member for Bexleyheath (Mr. Townsend), who, regrettably, is unable to be present. Before the district authorities emerged, our area was served by the Bexley and Greenwich health authority. As a result, people living in the western part of my constituency used St. Nicholas hospital because it was their nearest hospital. On the Bexley side of the divide, under funding of the district has caused St. Nicholas hospital to provide desperately needed services, which it has done extremely well for many years and for which I express the gratitude of the people of Erith and Crayford.
To close any hospital is always sad. To close one which is so valued and so vital is a mistake. The hon. Member

for Woolwich referred to population growth in his constituency. The same is true in my constituency, in Thamesmead, with its new community trust, and in Belvedere. This means that people will be looking for more hospital services in my constituency. Yet the response of the district and regional health authorities to that trend is to close St. Nicholas and to postpone development of the only other local hospital, the Erith and district hospital. Such policies not only cause much concern, but call into question the whole strategy of the regional health authority. hope that my hon. Friend the Minister will take serious note of that.
My second point is more general but entirely relevant to the debate. I believe that the National Health Service has a place for two types of hospital—the large district general hospital, such as Queen Mary's, with facilities for major surgery, acute care, and so on and the smaller local hospital, such as St. Nicholas and the Erith and district hospital. The smaller hospital should provide a range of services—walking wounded, outpatient services, limited surgical facilities, GP beds, geriatric care, and so on. The Erith and district hospital has provided such services, as St. Nicholas also did in the past.
With the technological advances in medicine, it is clear that expensive equipment can be provided only in the larger hospitals, but the value of smaller hospitals must not be underestimated. They provide and, I believe, will continue to provide, a vital community service and they should not be allowed to wither and die. I agree entirely with the hon. Member for Woolwich that the withering and dying of St. Nicholas hospital is regrettable and should be halted. Erith hospital is under a similar threat.
I urge my hon. Friend the Minister to look very carefully at the provision of much-needed medical facilities within our district because if we do not do that the people will suffer—the elderly and the sick whom we have to look after and about whom we are concerned today. The proposal to close St. Nicholas hospital is detrimental to my constituents, as is the failure to develop Erith hospital. I urge my hon. Friend to think long and hard, as I am sure he will, about the provision of facilities in our area—in Woolwich, Thamesmead, Erith and Crayford—to come and see those facilities and then to make his decision.

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. Ray Whitney): I am happy to have the opportunity to respond to a debate that is of great importance to the hon. Member for Woolwich (Mr. Cartwright), to my hon. Friend the Member for Erith and Crayford (Mr. Evennett) and to their constituents. I recognise their actions over many years to defend the hospital.
We are carefully considering the recommendations at ministerial level. The hon. Member for Woolwich has understandably said that that is not new, but he has accepted that this matter needs measured, careful consideration. We recognise the passions that have been raised and the realities to which the hon. Member for Woolwich and my hon. Friend the Member for Erith and Crayford referred.
We must all deal with the policy of the resource allocation working party—RAWP, that strange acronym which we have all grown to know and love, if not necessarily to understand. The thrust of the policy is to


move to greater equality in the provision of services throughout Britain. The policy has had bipartisan support for 10 years. The right hon. Member for Plymouth, Devonport (Dr. Owen) played a part in its initial stages. Under the RAWP formula, Greenwich health authority is 22 per cent. over the accepted level and, in common with a number of other inner London districts, is overprovided with acute beds. It needs to reduce the numbers of such beds, build up its priority services and release resources for redistribution to historically underprovided districts, such as Medway in the South-East Thames region.
We must approach this problem against the background of making sensible use of resources, while recognising the sentiments that are involved. We shall carefully consider the arguments made tonight and on other occasions by hon. Members and others. We are asking "serious questions", as the hon. Member for Woolwich was generous enough to recognise, about the timing of alternative facilities at Bexley and about transport. We need answers.
Those who put the case for the defence of St. Nicholas must face serious issues. The hospital was built in 1872. A new district general hospital—Greenwich—was built nearby in the 1970s and the Brook hospital is only three or four miles away, providing a comprehensive range of services. The district health authority believes that maximum efficiency can best be achieved by concentrating all acute hospital in patient services in those two major hospitals — Brook hospital and Greenwich district hospital.
In looking at the problems involved in running St. Nicholas hospital, we must take account of the resource implications. Of the total running costs of between £2 million and £2.6 million, only 46 per cent. is spent on direct patient care.

Mr. Cartwright: That is a fair point. I am sure the hon. Gentleman understands that that figure is so high because

There is so much unused space and so many unused buildings on the site. I suggest that we rationalise the site and use it more effectively. I suggest that Bexley should be allocated some beds at St. Nicholas to tide it over during this problem until the Erith development comes on stream. That would be another effective use of the resources.

Mr. Whitney: That is another possibility. I am not attacking or defending a stance, but putting the issues on the record. The hospital was built in 1872 and, whatever use it is put to, it will always be expensive to run and maintain. It is estimated that, on present proposals, there will be savings of about £1.5 million a year after the first year. The health authority is anxious to maximise its resources to meet the needs of the mentally ill, the mentally handicapped and the elderly.
I understand that the 12 general practitioner beds have consistently been underused, the average daily occupancy being just over half in 1983. I assure the hon. Member for Woolwich that there is no vendetta by Health Service officials. It is recognised that the district and regional health authorities must make the most sensible disposition of resources. They must be allowed to examine such a proposal. The fact that it has come back again and again does not necessarily make it bad. It might be the most justified one. I recognise the strong local loyalties that have been reflected here today.
My right hon. Friend the Minister for Health and I are considering the matter carefully. We shall examine still further with health authority chairmen the timing of the provision of alternative facilities and transport facilities. I hope that it will not be long before we can conclude that consideration. I assure hon. Members that the consideration will be careful and that what they have said tonight will form part of our examination.

Question put and agreed to.

Adjourned accordingly at seventeen minutes to Twelve o' clock.